Why China Saves So Much

Why Chinese households, firms and government save an unusually large share of income, and why economists call for rebalancing toward consumption.

China saves a remarkably large share of its income. National saving, by households, firms and government together, has been around 40 percent or more of GDP for many years, far higher than in most countries. Household consumption, by contrast, is a much smaller share of GDP than in most large economies.

Why households save

Precautionary saving: with limited social safety nets, households save for health care, old age and emergencies.
Education and housing: families save for children’s education and to buy homes, often expensive relative to income.
Demographics: the one-child policy meant fewer children to rely on in old age, encouraging parents to save more. Economists Shang-Jin Wei and Xiaobo Zhang also argued that competition in the marriage market, due to more men than women, pushed families with sons to save to buy homes.
Low household income share: households receive a relatively small share of national income, as more goes to firms and government.

Why it matters

High saving funded China’s enormous investment in factories, infrastructure and housing, helping drive rapid growth. But economists increasingly argue China relies too much on investment and exports and too little on consumption:

Investment in some sectors, like property and infrastructure, has reached diminishing returns.
Surplus production can lead to large trade surpluses, creating tensions with trading partners.
Low consumption means households benefit less from growth than they could.

Rebalancing

Rebalancing means shifting growth toward household consumption. Ways to encourage it include:

Stronger social safety nets, such as better pensions and health insurance, reducing the need for precautionary saving.
Hukou reform, giving migrants access to urban services.
Raising households’ share of income.

Two families' choices

A family with good health insurance and a reliable pension may spend more on travel, restaurants and goods today. A family worried about paying for hospital care or supporting itself in old age will save much more. Across hundreds of millions of households, these differences shape a whole economy's balance between saving and spending.

Thinking high saving is always good

Saving funds investment, which is vital for growth. But when saving is so high that consumption is held down and investment flows into unproductive projects, the economy can become unbalanced. The right level of saving depends on having good uses for it.

Key takeaways

China's national saving has been around 40 percent or more of GDP.
Precautionary saving, housing, education, demographics and a low household income share explain high household saving.
High saving funded rapid investment but left consumption relatively low.
Rebalancing toward consumption requires stronger safety nets and higher household incomes.