Why is China's Savings Rate So High?

Abstract

China’s economy is quite distinctive in the modern world as it has a comparatively high savings rate. China’s rapid growth in recent years has depended on a development model that has rested heavily on industrial investment and exports. To balance China’s economic structure and provide more sustainable growth, a shift toward a stronger reliance on domestic consumption is necessary. Identifying the causes of China’s high savings rate could shed light on approaches to stimulate domestic consumption. Although progress has been made to understand the Chinese saving behaviors from the point view of economics, a significant void in the perspective of political science and public administration remains. Complementing prior research, this study aims to add political and governmental factors of China’s high savings rate to the current literature. Based on a panel data of 91 countries over the time span from 1980 through 2010, this dissertation finds that the main factors of China’s high savings rate include GDP per capita, GDP growth rate, borrowing constraints, gender imbalance, social safety net, political stability, and government regulation quality. In addition, China’s national savings are broke down into three parts: enterprise, household, and government savings. All of the three sectors have contributed to the high savings rate in China. However, the real driver behind the high aggregate savings rate is the Chinese government. The high savings rate is the product of a series of government policies that have prioritized investment and export over consumption. Political and governmental factors exert an influence on savings rate.