Saving: intro and role of rising housing, education and health expenditures

Question 1

Stats showing China’s saving rates compared with US and UK?

Answer 1

China - 25-35%
UK - 5.1%
US - 4.5%

Question 2

Stats showing how China’s savings have increased over last few decades despite low incomes?

Answer 2

’90s roughly 5% increase in savings
’00s 10% increase
roughly 30% savings rate by 2010

Question 3

Following FC what would be a good route for China to go down?

Answer 3

Switching from I to C GDP

Question 4

4 main causes/factors thought to affect for China’s high saving rate?

Answer 4

Rising housing, education and health expenditures
Uncertainty
Role of siblings
Role of marriage

Question 5

Stat showing the rise in house ownership?

Answer 5

1990 17% owned homes, by 2005 86% owned homes

Question 6

Fact regarding age groups that save in China?

Answer 6

Middle aged save less, young and old save more

Question 7

How has health and education expenditure changed from 1995-2005?

Answer 7

Risen from 2% of income to 14% of income

Question 8

3 points that could explain why older people save more vs middle agers?

Answer 8

1) Education expenditures rise up until about 45yrs when they peak (paying for kids) tf lower saving rate for middle agers
2) Health expenditures have increased, and they tend to increase with age tf as people get older they save more
3) 1977 Pension Reform -> fall in replacement ratio of pensions from 80% on avg. to 60% on avg. tf older people now save more (explains rising save rates too)

Question 9

Explain how housing reforms may have led to an increase in savings rates over the last 15yrs?

Answer 9

In past houses were supplied to workers by SOEs, last decade has been housing reform -> houses being sold to workers -> increased savings rates to buy/pay for housing

Question 10

Explain way transitioning to a market economy -> increased saving?

Answer 10

shift towards private sector tf less being employed by SOEs:

-since SOEs are more stable, switch away from them -> higher precautionary saving

Question 11

Explain how, going forward, consumption may increase?

Answer 11

Financial market development ->

• possibility to borrow against future income
• better portfolio investment -> higher RofR

This and improvements in provision of education and welfare net should decrease savings rate and tf increase consumption

Question 12

Briefly, how does the role of uncertainty lead to a rise in saving?

Answer 12

China economic reform -> increased uncertainty -> increased precautionary saving