Alex's China & the World Economy Part A: Housing Sector I. Explaining the high saving rates in China - 4. The Role of Siblings

Question 1

Which source is this whole section based on?

Answer 1

Zhou, W. (2014). Brothers, household financial markets and saving rate in
China. Journal of Development Economics, 111, 34-47

Question 3

The Role of Siblings in Chinese Household Saving (Zhou, 2014)

Answer 3

Zhou (2014) explores how brothers affect household saving behavior in China.
In underdeveloped financial markets, family acts as a safety net.
2008: Over 80% of debtors borrowed from family/relatives; <20% from financial institutions.
One-Child Policy reduced sibling numbers → weakened informal safety nets → increased saving.
Mechanisms:
Risk-sharing: More brothers = less need to save for emergencies.
Parental support: Brothers share the cost of supporting aging parents.

Question 4

Empirical Evidence on Siblings and Saving Rates

Answer 4

Data: 2002 China Household Income Project (CHIP).
When asked how they’d raise 10,000 RMB in an emergency:
60% said “family/relatives”
<3% said “financial institutions”
Findings:
Households with 0 or 1 brother save more than those with 2+ brothers.
Number of sisters has little effect, except among younger generations.
Population policy context:
1979–2015: One-Child Policy → fewer siblings → higher saving.

Question 5

Statistical Relationship Between Brothers and Saving

Answer 5

Figure 6: More brothers → lower saving rate, not driven by income.
Regression model:
Controls for total siblings and household characteristics.
Coefficient on “brother” is negative and significant.
One brother instead of a sister reduces saving rate by 4.7%.
Effect is weaker in rural areas (due to village-level risk-sharing).

Question 6

Why Do Brothers Reduce Saving?

Answer 6

Income uncertainty and health risk:
Households with higher risk show stronger brother effects.
Risk measured via wage stability and health status.
Regional financial development:
Brother effect is smaller in areas with:
Higher insurance density
More foreign banks
Parental support:
Fewer surviving parents → smaller brother effect.
Male children are culturally expected to support parents.

Question 7

How do income levels influence the effect of brothers on saving behavior?

Answer 7

Table 6: Brother effect is strongest among low-income/low-asset households.
Confirms that brothers:
Extend borrowing limits
Provide risk-sharing
Zhou (2014) concludes:
One additional brother reduces saving rate by at least 5 percentage points.
Decline in brothers explains 38% of the rise in urban saving rates (1990–2005).
Highlights the urgent need to develop formal financial markets as sibling-based safety nets decline.