Why the Chinese Save

Some say that a major cause of the U.S. housing bubble was a surge in savings overseas, particularly in China, where the personal savings rate soared to 30 percent of disposable income. (In the U.S., meanwhile, we were saving next to nothing). Just why the Chinese were saving so much has been a puzzle to many economists. Now Shang-Jin Wei and Xiaobo Zhang think they’ve come up with an explanation. It turns out that China’s “one child” policy, which created a huge surplus of men in the country, has driven up the cost of getting married, as more and more men compete for fewer and fewer women. To keep up, families with sons have been holding off on spending to save up wealth that boosts their children’s marriage prospects. In their paper, Wei and Zhang argue that Chinese marriage-price inflation could account for as much as half of the increase in the country’s household savings since 1990. [%comments]

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  1. Rob says:

    Wow, that is a crazy connection. I’m waiting for when the one-child policy creates the need for a war to kill off all those extra men. However, the war might be in Vietnam, after the Chinese buy all their women.

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  2. Rahul says:

    Recently the Indian Savings Rate plunged.

    It is now at 34%. eh!

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  3. Can't test it, so it's just speculation says:

    How can they test this theory?

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  4. Abhimanyu Agrawal says:

    In India, where savings rates are also very high, it’s exactly the opposite. Families save for spending lavishly on their daughter’s marriage (and dowry too, sometimes).

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  5. Garrett Pendergast says:

    File this under “Unintended Consequences”.

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  6. Jrm says:

    I’m not sure this scenario applies to people of Chinese descent living in Vancouver, Paris, or wherever.

    And this demographic imbalance doesn’t apply to Korea or Japan.

    But both categories above save a lot too.

    Isn’t it just a cultural thing ?

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  7. Mike B says:

    China also doesn’t have any social safety net and traditional forms of protection for people in their old age are breaking down as children move away to the cities leaving their parent’s behind. As having lots of children was the old form of social safety net the one child policy is having an effect there.

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  8. Brandon says:

    A rather spurious conclusion, but entertainment value trumps logical consistency in my book anyways.

    Even better, maybe things are reversed? Rather than families with boys actively saving more, perhaps families with girls actively spend more?

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