Alex's China & the World Economy Part A: Housing Sector II. Why do Chinese households save mainly in cash? Flashcards
(4 cards)
Introduce the topic and paper of ‘Health shocks and cash holdings in China’
Tian, Guariglia & Horsewood (2022) explore the link between health shocks and cash holdings.
Stylized facts:
13.2% of the world’s unbanked are in China.
21% of rural adults lack a bank account.
93% of those aged 45+ hold all assets in cash/deposits; 67.6% hold only cash.
Health shocks increase uncertainty → preference for liquid, safe assets.
H1: Health shocks → higher probability of holding only cash and higher cash ratio.
Supported by data from CHARLS (2013, 2015, 2018).
Empirical evidence on health shocks and cash saving
Indicators:
SRCH: Self-reported health deterioration.
Acute: New diagnosis of serious illness (e.g. cancer, stroke).
Results:
Acute health shocks → 2.7 pp more likely to hold only cash.
Cash ratio increases by 2.1 pp.
SRCH not statistically significant.
Other findings:
Men, wealthier individuals, and those in banked villages hold less cash.
Married individuals hold more cash (linked to lower trust in banks).
How does the type of health insurance reimbursement affect cash saving behavior?
H2: Health shocks have a stronger effect on cash saving when reimbursement is delayed.
Results:
Rural respondents with ex-post reimbursement:
2.8 pp more likely to hold only cash.
2.7 pp higher cash ratio.
No significant effect for those with immediate reimbursement.
Suggests that insurance design (timing of reimbursement) affects financial behavior.
How does access to banking infrastructure influence the relationship between health shocks and cash saving?
H3: Health shocks have a stronger effect in areas without banks.
Results:
Rural respondents in unbanked villages:
2.4 pp more likely to hold only cash.
1.9 pp higher cash ratio.
No significant effect in banked villages.
Conclusion:
Lack of bank access amplifies the precautionary motive to hold cash.
