|Heleen Mees (Photo credit: Dave Pinter)|
The fact that the conventional Keynesian saving model, which implies a long-run tendency for the savings rate to rise with income, may largely explain China’s household savings rate in the past three to five decades, is best understood against the background of China as an emerging economy. There is evidence from developed countries that when income growth slows, savings rates decline. Since the high household savings rate is in part prompted by precautionary savings motives, especially for old age, the successful implementation of credible retirement plans – as announced in The Twelfth Five-Year Plan (2011-2015) – may reduce the household savings rate. However, as many Chinese fear that their country will grow old before it grows rich, precautionary motives may continue to fuel household savings as a share of disposable income in the years to come.The article is co-authored by Raman Ahmed.
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