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China's high saving rate: myth and reality

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  • Guonan Ma
  • Wang Yi

Abstract

The saving rate of China is high from many perspectives - historical experience, international standards and the predictions of economic models. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s, so that the aggregate marginal propensity to save exceeds 50%. What really sets China apart from the rest of the world is that the rising aggregate saving has reflected high savings rates in all three sectors - corporate, household and government. Moreover, adjusting for inflation alters interpretations of the time path of the propensity to save in the three sectors. Our evidence casts doubt on the proposition that distortions and subsidies account for China's rising corporate profits and high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewis-model transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. While such structural factors suggest that the Chinese saving rate will peak in the medium term, policies for job creation and a stronger social safety net would assist the transition to more balanced domestic demand.

Suggested Citation

  • Guonan Ma & Wang Yi, 2010. "China's high saving rate: myth and reality," BIS Working Papers 312, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:312
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    References listed on IDEAS

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    1. Richard Herd & Hu-Wei Hu & Vincent Koen, 2010. "Providing Greater Old-Age Security in China," OECD Economics Department Working Papers 750, OECD Publishing.
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    More about this item

    Keywords

    corporate; household and government saving; Chinese economy;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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