The Chinese Savings Puzzles
Résumé
The Chinese savings puzzle is defined by its increasing national savings rate since the early 1990s and reaching an unusually high level in recent years. There are two main causes for this puzzle. The first one is the high and increasing share of Chinese firms and financial institutions in the national disposable income (these agents have no final consumption and so save their whole disposable income). This can be partly explained by an uneven sharing of value added, which favors profit to the detriment of wages, due to the high and increasing supply of labor in urban areas. The high coprporate savings also results from the low distribution of firms' income. State-owned enterprises (SOEs) generally have little incentive to distribute dividends and those that are distributed, are usually reinvested; private firms face rationing in the credit market and need to finance a bulk of investment with their own retained earnings.
The second cause of China's savings puzzle relates to the increasing and high household saving rate. This can be explained by the life-cycle hypothesis while taking into account of a set of pertinent Chinese factors, such as the one-child policy, which induces parents to save more in the absence of sufficient children to support their post-retirement life, and the necessity for households to accumulate enough savings in order to buy a house when the mortgage market is still limited. A complementary explanation is the higher precautionary savings accumulated by households to prepare for contingencies, e.g. unemployment and health risks.