The Chinese Savings Puzzle and Financial Market Development, 2002-2012

Abstract

This paper studies a panel of Chinese provinces from 2002-2012 during which the urban household saving rate increased from roughly 25% to 30% nationally. It demonstrates that this increase is negatively associated with declining real interest rates and the limited growth of private lending. This negative relationship between proxies of financial market growth and saving rates indicates that Chinese households save to compensate for eroding real returns on savings deposits and limited access to credit. Potential policy implications of these results suggest that increasing the interest rate, reforming urban pensions, and increasing access to credit would mobilize private savings and stimulate domestic consumption.