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It is not a secret that the Chinese are saving like crazy. The big question is why their savings rate is the highest in the world and it was addressed before on this blog (more below). The explanation that this would have to do with life-cycle considerations as the population ages (with few children) has by now been largely dismissed. So can explain it?
Riccardo Cristadoro and Daniela Marconi make the point that we really need to look at households, as firms or the government have not increased their savings rate sufficiently. Using panel data, they notice that the savings behavior differs markedly across provinces. And one aspect that does as well vary across provinces is the provision of social services and the access to credit. Thus they tie the high savings rate with the need to build up precautionary savings. This corroborates my previous posts about increased idiosyncratic risk and the reform of the public pension system.
Thursday, February 16, 2012
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2 comments:
Someone else (I know that's not very helpful - I can't remember where I saw it) made the point that the the high savings rate of households might be correlated to gender imbalance and the need for men to find a mate (and therefore that higher savings increased the chances of finding one). The same person argued that the lack of social security didn't explain enough, as this too had changed over time. Anyway, a quick google search will pull up the original paper.
I would lean toward there being a mix of explanations -- cultural, habits, and then there's government policy.
Culture & habits -- could envision that if you were desperately poor, in good years your instincts might be to save. If you have 2-3 good years in a row, you're saving rate might be really high. If you have 34 really good years in a row, as China has, you can increase your consumption astronomically, and still be saving a lot.
Didn't all of the Asian Tigers and Japan have high savings rates? This mitigates against a China-specific explanation... Savings for the Tigers actually peaked in the 1990s, long after the miracle.
There's also gov't policy. Savings is the difference between output and consumption, and also equal to the Current Account plus investment. Artificially low exchange rate should increase Y, lower C, increase the CA, and increase I... So, should increase the savings rate in a completely standard model.
-Alexander Hamilton
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