26 October, 2009

China’s domestic saving as % of GDP

Households make the biggest contribution, Urban households headed by 25 year olds save almost 30% of their disposable income, as do those headed by 60year olds. This pattern is quite different from that in most countries, Where the young borrow against future income and the elderly run down the savings they accumulated in their high earning middle years.

One reason why the Chinese save is because they have to pay for things such as education and health care which in other countries are provided by the state. It’s not saving; it’s self taxation, says Paul French of Access Asia, a consumer research firm in Shanghai. The government has promised to spend 850 billion yuan ($125 billion) in 2009 to widen health insurance coverage and improve public clinics and hospitals. It is also reforming the pension  system  which  now  leaves  out over  half of  urban workers  and  90%  of their rural counterparts.

Another reason why the Chinese save is because they find it hard to borrow. Only a small proportion (11% of younger households) has a mortgage, and those that do scrimp and save to try to pay it pay it off in 5 years