Why do the Chinese save so much?

Yes, it's Eric Barker day.  Here is another entry from Eric's blog.  We all know that there are many more men in China than women and here is what that equilibrium looks like:

“The increased pressure on the marriage market in China might induce men and parents with sons to do things to make themselves more competitive,” Wei says. “Increasing savings is one logical way to do that, to the extent that wealth helps to increase a man’s competitive edge. Parents increase household savings mostly by cutting down their own consumption.”

Wei worked with Xiaobo Zhang of the International Food Policy Research Institute in Washington, D.C., to see if his hypothesis held up, comparing savings data across regions and in households with sons versus those with daughters. “We find not only that households with sons save more than households with daughters in all regions,” Wei says, “but that households with sons tend to raise their savings rate if they also happen to live in a region with a more skewed sex ratio.”

The effect is significant. The household savings rate in China rose from about 16 percent of disposable income in 1990 to over 30 percent today, which is much higher than most countries. About half of the increase in the savings rate of the last 25 years can be attributed to the rise in the sex ratio imbalance. “It’s a very high ratio of savings to income,” Wei says. “The comparable savings rate in the United States would be 2 or 3 percent before the crisis, and about 6 percent since the crisis.”

Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.

The original source is here.  You'll note, by the way, that low wages and a high savings rate are the fundamental reasons for global imbalances, not Chinese currency policy.  If this is true, one implication is that the Chinese attempt to cut population leads indirectly to those global imbalances.  If you "fear China" (whatever that means), the current imbalances might be better than the relevant alternatives, namely a China with high and growing population and all the environmental problems which that involves.

There's plenty of talk from people wanting to make China "do it right" but only rarely do those discussions recognize all the constraints which China is laboring under.


Comments for this post are closed