Factors behind China's persistently high household savings rate
The past four decades have witnessed an explosive growth in China’s national gross domestic product (GDP) along with tremendous growths in its national and household savings rates. Though showing slightly decreasing trends in recent years, the savings rates still remain high, making China the largest capital exporter in the world. Using separate panel datasets for urban and rural households from 27 selected Chinese provinces, municipalities and autonomous regions over 2005 – 2017, this thesis continues from previous studies to investigate the factors behind China’s persistently high household savings rate. Models are designed to test the applicability of the Keynesian absolute income hypothesis, the Friedman permanent income hypothesis and the Modigliani life cycle hypothesis in explaining Chinese households’ savings behavior. Results show that the savings rate of urban households is sensitive to the magnitudes of short- and long-term income and expected income growth, whereas the savings rate of rural households is more dependent on the growth rate of income from the previous year and the demographic structure of households. Amidst the COVID-19 outbreak in the first quarter of 2020, predicting future household savings rates becomes particularly challenging. The last section of this thesis contains a brief discussion on the impacts created by the pandemic so far and some potential remedial measures the government might take in the near future.