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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COMMENTS: 31


  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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  9. Kat says:

    It is a cultural thing. Chinese people don’t like spending money they don’t have. Credit Cards and loans are still very new to their lifestyles because they do enjoy having a safe financial cushion in savings for comfort and peace of mind.

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  10. ponbop says:

    Or maybe they have less kids to pay for, so more money to save?

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  11. Mike says:

    I thought this was a settled issue. China has no social safety net, therefore individuals have to provide their own fallback. In addition there are clear cultural / political differences. The Chinese can’t trust their government so they save for contingencies. Americans are (were) of the opinion that tomorrow would be better than today so why hold back?

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  12. Angela Yun says:

    This increase in personal savings might also have to do with the simple fact that the a larger portion of the Chinese population is actually ABLE to save due to the recent economic expansion. Before the economic expansion a greater portion of the population may have had a marginal propensity to save close to zero, spending everything they earned to…well, basically survive. But today people are probably finding themselves more educated, better paid, and ultimately able to save/save more for future incentives (and those incentives probably do include the expensive wedding(s)).

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  13. Yik keng yeong says:

    The Chinese, as indeed the ethnically and socially related Japanese, Koreans and IndoChinese communities save for a few cogent reasons, first and foremost of which being that THRIFT is considered a virtue. It is a virtue of eroding value and viewd with a jaundiced eye by many young of today but nevertheless still cherished and inculcated from childhood in traditional Chinese homes. These communities abhor the concept of spending potential income and will mortgage their future incomes for only purchase of property or the pursuit of an education, both ventures being historically proven since their feudal homeland times to pay dividends over and above the burden and cost of obtaining credit. Yes, it is also true that the Chinese believe in choosing spouses of equivalent wealth, position, status and education. A display of home assets or a doctorate is as potent as a display of vulgar cash.

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  14. hmmm... 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).”

    Sounds like a solution in the making. All the excess Chinese boys can marry all the excess Indian girls and we’ll get peace in the region too :)

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  15. Kent says:

    Your one-child policy-based theory makes some sense, but it probably has as much to do with people living in a country who until recently, were so poor that their instinct in times of plenty is still to save and to live frugally.

    Witness Americans who grew up during the Great Depression who also had relatively high savings rates.

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  16. Tzipporah says:

    Has anybody considered actually asking Chinese people what they are saving for?

    I know, radical suggestion in economics, but come on, people… !

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  17. Wes says:

    So does this mean that average marrying age of men is going up too, as they need time to save up that money?

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  18. wen says:

    For the people living in countryside, most parents do save a large fraction of their earnings for their sons’ marriage. It is very common borrowing from relatives for a wedding and return later. The same applies to the low and middle income working class living in cities. As these groups of people accounts for about 90% of the China population, their savings account for a large percentage of the whole country’s saving. It is true there is a tradition in China that people keep trying to save for the uncertain future no matter how much they earn.

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  19. Kirilius says:

    Why the Chinese Save?

    Because most Asian cultures are long-term oriented. They save for cultural, not for economic reasons.

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  20. Ms says:

    I wonder if the authors are native Chinese who can understand the social nuances of each region, bride price, class and status. To American economists all these may be hard to capture and transfer into a sensible economic theory.
    I can’t say for China but Indians have always been frugal and this was not linked to their kids’ marriage prospects. Parents of daughters saved for wedding expenses but parents of sons also had to save for college costs etc.

    In most urban areas these days sons and daughters are treated equally and dowries are not as huge — love marriages are cheaper for the bride’s family than arranged marriages where the groom’s family can bargain and demand.
    Indians saved because that was their primary safety net …social services when available are of such poor quality . The Gov provides subsidized food, health care, schooling but no one expects to use them unless desperate.

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  21. mfw13 says:

    Couple of thoughts on this from somebody who is married to an overseas Chinese and therefore has Chinese in-laws.

    1) The lack of a safety net is an issue.
    2) Chinese people, like many others in the developing world, are in general much more thrifty and frugal. Every purchase is a chance to negotiate and haggle, even if it saves only a tiny bit of money.
    3) Traditionally, Chinese parents rely on their kids to support them in retirement, hence the desire to have as many kids as possible. However, the one child policy means that there will now be many fewer kids around to support their parents, thus causing parents to save a lot more on their own. Parent know that they will no longer be able to rely on their kids to support them when they retire, so they are becoming more frugal during their working years and saving more money.

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  22. Forrester says:

    This question makes no sense to me. The point of saving is to accumulate wealth. If you have more money, you and you children have more options in life. It’s obvious to everyone except (apparently) Americans.

    What I can’t fathom is why Americans think saving next to nothing is good.

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  23. rt says:

    I think it has more to do with social security in certain countries, because that has a huge impact on personal risk appetites. I remember this small incident from college.
    I am an Indian, and in our Bschool we would have this course on interpersonal skills which had this exercise in it to gauge how assertive you are. I am guessing all of us have done it at some point or the other… where a group of you are given this list of items that you need to prioritize , given the situation that your ship has hit something, its sinking, you cant see land to the horizon and you need to decide from a list of 15-20 items as to what you must carry with you on the raft.
    The items were basically of 2 types, the kind that would help you sail or row (tarpaulin, wooden slabs etc) and the kind that would help you sustain or survive (ie chocolates, brandy, etc). Almost all Indian students prioritized stuff that would help them sail or row…even though it was mentioned that there is no land in sight!!! They still felt they had a better shot at survival if they rowed to safety. While almost all European students prioritized the second set of choices more….simply cause they come from countries with incredible social security in place, and they had full faith that a rescue team would eventually find them, all they had to do was make sure they stayed alive till then.
    I guess that’s reflected in savings as well…. In India , where there are no unemployment benefits, there is a huge uncertainty associated with every cash flow. So people save…a LOT.
    Like I mentioned above, low social security mean low financial risk appetite means you park your funds in the safest places possible.

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  24. Karl says:

    What about the fact that the one child policy has left them with a demographical ticking time bomb? If I were Chinese I would save for dear life so that I could afford health care or pension when I get old.

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  25. Raquel says:

    Make me start to think that an inverse dowry (the money a husband pays the family of the wife) might solve the missing girls problem.

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  26. Abby says:

    It is a pretty well known tradition among Chinese people….it is not uncommon for middle class parents to save 150,000-300,000 yuan for their son’s wedding as they are also supposed to buy the first home for him and his new wife. People in China (like my own relatives) have an easier time paying b/c my parent’s generation had steady government jobs and incomes and government assigned housing. There is no need to pay for mortgages or car loans since most people didn’t have cars….food is relatively cheap and so it is a lot easier to save than it is here.

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  27. Tracy says:

    I think the real issue here is: Why Don’t Americans Save?

    Saving is the smart, prudent thing to do. Spending every last penny and accuring debt is probably not what we should consider “default” behavior.

    Tracy W.

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  28. Fuji says:

    Delayed gratification – the marshmallow test.

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  29. Hu An says:

    Westerners seem to think that if the Chinese government were to use its hard-earned savings to create a welfare state, Chinese will start spending.

    That’s unlikely, nor is the Western welfare state desirable for China. From what I’ve seen and experienced within my own family, Chinese to start their own business. Everyone in the family saves as much as they can and then they pool their money together to buy a stall. They repeat the process in hopes of buying a storefront. And so forth. Chinese save because they’re entrepreneurial and seek to improve their lives.

    Another reason Chinese save is because they don’t have and many businesses don’t accept credit cards.

    And finally, Chinese will spend a lot when they have a lot money. The wealthiest Chinese are far more likely to buy designer clothes and handbags than their Western counterparts. And I’m willing to bet that middle-class Americans are far more willing to spend on designer fashions than their Chinese counterparts. In China, the wealthy are conspicuous consumers. In the US, it’s the middle class who are conspicuous consumers.

    China doesn’t need a welfare state. Using welfare to spur spending will at best, result in little or no increase in spending and at worst, weaken Chinese entrepreneurial spirit and self-reliance. Spending money on welfare is a waste of money. Better to spend on infrastructure.

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  30. Matthew says:

    Excess males in China – recipe for WW3 (Armageddon). Revelations tells us that a great power in the east will rise in the end times and fight a war in the middle east (Israel).

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  31. player hater says:

    Chinese, Koreans, and Japanese save more than expected for several reasons.

    1. East Asian countries have only recently emerged from extreme poverty. Even for Japan – a highly developed country today – it was nothing more than poor feudal state just 100 years ago. Having recent memories of poverty is a great motivation to save.

    2. East Asian cultures are less individual-oriented and more family-oriented. There is less of the “spend all your wealth by the time of the death” mentality that is so prevalent among Westerners because the parents are expected pass their wealth to their children. Ironically, I also believe that this behavior will limit Asia’s long-term economic growth because historically, large inheritance results in less incentive to strive for economic success.

    3. The gender imbalance as described in this article is probably the third factor.

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