Why Do Chinese Households Save So Much?

Using a dataset that covers 5 decades (1960–2009), we show that the main determinants of China's household savings rate are disposable income (measured by its reciprocal) and the old-age dependency rate. The income growth rate and young age dependency rate have a limited role. Our findings support the Keynesian saving hypothesis instead of Modigliani’s life cycle hypothesis, although precautionary saving motives are also important. We don’t find evidence that China's one-child policy or low interest rate drives the household savings rate. Both the sex ratio and the interest rate prove not significant. We show that the household saving curve is neither u-shaped nor hump-shaped, but positively sloped.