Demographic Trends and Household Saving in China

A key source of economic growth in China has been the abundance of household savings, especially in rural regions. In this paper, we estimate saving functions for urban and rural areas in China, paying particular attention to the role of demographic structure. Our results confirm other researchers' finding that saving rates vary inversely with both the elderly and youth dependency ratios, but that the former effect is more significant. This suggests that prospective demographic trends in China will put downward pressure on household savings. Combining our estimation results with reasonable assumptions about economic growth and U.N. population projections, we predict that household savings in China will begin to decline about 2025. A significant shortage of "ex ante" savings could develop as a result. These results confirm the results and reinforce the concerns expressed by Heller and Szymansky (1997) about the long-run prospect for savings in the East Asian region and possible implications for the global economy.

VIEW CONTENT