Household Finance in China

45 Pages Posted: 28 Aug 2017

See all articles by Russell Cooper

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Guozhong Zhu

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: August 2017

Abstract

This paper uses a lifecycle model to study household finance in China, focusing on the high savings rate, the low stock market participation rate and the low share of stocks in wealth. We control for important regime changes in China in the estimation of structural parameters, and examine their impacts on household finance patterns. Relative to the US, the distinctive financial choices of households in China are driven by institutional factors, such as labor market risks and costs of asset market participation, as well as by differences in preferences. Specifically, large stock market participation and adjustment costs along with high stock market volatility in China lead to the relatively low stock market participation rate and the low share of stocks in wealth conditional on participation, but they contribute little to the high savings rate. The high savings rate in China is driven mainly by high labor market risks and the patience of households. Given the estimated differences between China and the US in preferences, the model predicts that households in China would continue to save more than their US counterparts even if institutional differences disappear.

Suggested Citation

Cooper, Russell W. and Zhu, Guozhong, Household Finance in China (August 2017). NBER Working Paper No. w23741. Available at SSRN: https://ssrn.com/abstract=3027845

Russell W. Cooper (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guozhong Zhu

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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