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. 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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  2. 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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  3. 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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  4. 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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  5. 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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  6. 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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  7. 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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  8. 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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