211.3
Are the Chinese Saving for Old Age? the Precautionary Motives of High Household Savings
The one-child policy in China, put in force in 1979, converged with the macro-economic developments over the last two decades. The Chinese GDP increased at an annual rate of 9% between 1995 and 2010. Poverty had declined from 65 percent of the population in 1981 to about 13 percent in 2010, lifting hundreds of millions out of poverty at an unprecedented rate. The share of household savings more than doubled to almost 25% of disposable income, the highest saving rate in the world after India.
As the parents of one-child generations grow older, the steep demographic changes pose increasing insecurity. The old-age dependencyratio - number of people over 65 for every person of working age- is expected to double over the next two decades. What kind of policies the Chinese central government initiated to prevent old-age poverty and the overburdening of the middle generation? And, is the high household savingquota an indicator that the Chinese are aware of the financial risks of longevity? Though the Chinese government launched various pension programs, these payments are not yet adequate for older Chinese to make a decent living. Therefore, we assume the high household savingquota has been an indicator of the awareness of the risk of longevity, though many other theories are proposed. We analyse the correlation between pensions and savings whereby those entitled to pensions are expected to save significantly less and hypothesize that these two are more or less communicating vessels.
First we analyze China’s transforming economy and household income from the perspective of the growing dependency rate. Because we are interested in the question if the Chinese are preparing for old age, we analyze the data from the China Health and Retirement Longitudinal Study (CHARLS).