WHY DO THE CHINESE SAVE SO MUCH?
Shang-Jin Wei
Forbes, February 2, 2010
Much attention has been directed toward China's high savings rate. Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China's current account surplus and the U.S. consumer deficit. When national savings exceeds investment, the excess savings shows up in China's current account surplus.
Given its far-reaching effects, both private sector analysts and policy makers have attempted to trace the causes of China's high savings rate and to predict how long it will last. Some have attributed the savings primarily to Chinese corporations rather than households. Others point to a precautionary savings motive: because Chinese people are worried about costs of healthcare, education and old-age pensions and are unsure about how much these costs might change over time, they respond by saving more. Other explanations point to habit formation or financial development.
But these explanations do not tell the whole story, and possibly are not the most important part of the story. For example, while the Chinese corporate savings rate is high, there are similar patterns in other countries. By contrast, the high Chinese household savings rate has no peer among major economies. In my recent research with Xiaobo Zhang, we hypothesized that one important social phenomenon is the primary driver of the high savings rate. For the last few decades China has experienced a significant imbalance between the number of male and female children born to its citizens.
There are approximately 122 boys born for every 100 girls today, a ratio that translates into cutting about one in five Chinese men out of the marriage market when this generation of children grows up. A variety of factors conspire to produce the imbalance. For one, Chinese parents often prefer sons. The availability of ultrasound makes it easy for parents to detect the gender of a fetus and abort the child that's not the "right" sex for them.
Forbes, February 2, 2010
Much attention has been directed toward China's high savings rate. Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China's current account surplus and the U.S. consumer deficit. When national savings exceeds investment, the excess savings shows up in China's current account surplus.
Given its far-reaching effects, both private sector analysts and policy makers have attempted to trace the causes of China's high savings rate and to predict how long it will last. Some have attributed the savings primarily to Chinese corporations rather than households. Others point to a precautionary savings motive: because Chinese people are worried about costs of healthcare, education and old-age pensions and are unsure about how much these costs might change over time, they respond by saving more. Other explanations point to habit formation or financial development.
But these explanations do not tell the whole story, and possibly are not the most important part of the story. For example, while the Chinese corporate savings rate is high, there are similar patterns in other countries. By contrast, the high Chinese household savings rate has no peer among major economies. In my recent research with Xiaobo Zhang, we hypothesized that one important social phenomenon is the primary driver of the high savings rate. For the last few decades China has experienced a significant imbalance between the number of male and female children born to its citizens.
There are approximately 122 boys born for every 100 girls today, a ratio that translates into cutting about one in five Chinese men out of the marriage market when this generation of children grows up. A variety of factors conspire to produce the imbalance. For one, Chinese parents often prefer sons. The availability of ultrasound makes it easy for parents to detect the gender of a fetus and abort the child that's not the "right" sex for them.
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