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The determinants of household saving in China: a dynamic panel analysis of provincial data
In this paper, we conduct a dynamic panel analysis of the determinants of the household saving rate in China using a life cycle model and panel data on Chinese provinces for the 1995-2004 period from China's household survey. We find that China's household saving rate has been high and rising and that the main determinants of variations over time and over space therein are the lagged saving rate, the income growth rate, and (in some cases) the real interest rate and the inflation rate. However, we find that the variables relating to the age structure of the population usually do not have a significant impact on the household saving rate. These results provide mixed support for the life cycle hypothesis as well as the permanent income hypothesis, are consistent with the existence of inertia or persistence, and imply that China's household saving rate will remain high for some time to come.
AUTHORS: Wan, Junmin; Horioka, Charles Yuji
Why do Chinese households save so much?
AUTHORS: Wen, Yi; Shimek, Luke M.
Housing prices and the high Chinese saving rate puzzle
China?s over 25% aggregate household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast-rising housing prices in China. However, cross-sectional data do not show a significant relationship between housing prices and household saving rates. This article uses a simple consumption-saving model to explain why rising housing prices per se cannot explain China?s high household saving rate. Although borrowing constraints and demographic changes can translate housing prices to the aggregate saving rate, quantitative simulations of our model using Chinese time-series data on household income, housing prices, and demographics indicate that rising mortgage costs can increase the aggregate saving rate by at most 2 to 4 percentage points in the best down-payment structure.
AUTHORS: Wang, Xin; Wen, Yi
Making sense of China’s astronomical foreign reserves
The current global-imbalance literature (which explains why capital flows from poor to rich countries) cannot explain China?s foreign asset positions because capital cannot flow out of China under capital controls. A related but deeper puzzle that this literature fails to address is China?s high saving rate despite an astonishingly rapid income growth rate. This paper argues that understanding China?s massive foreign reserves must start with a basic trade model (e.g., Melitz, 2003) in which a growing trade volume is driven by an elastic labor supply and rapid productivity growth. Imbalanced trade will then emerge if there exist uninsured risks (which remain constant as the economy grows) and exporters are borrowing constrained. In this case, fast growth can lead to excessively high saving rates and trade surpluses. Thus, a modified Melitz model featuring rapid productivity growth, elastic labor supply, and incomplete markets can qualitatively and quantitatively explain China?s massive (and "passive") accumulation of low-yield foreign reserves. The simple infinite-horizon model is hence consistent with the stylized fact that high saving is the consequence of high growth instead of the opposite (Modigliani and Cao, 2004), which the permanent income theory and global-imbalance literature fail to predict.
AUTHORS: Wen, Yi