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The Chinese Savings Puzzle in 2020

Implications for the COVID-19 Pandemic and Beyond


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COVID-19 has become a major challenge for China’s public health and economic growth. The country faces high unemployment, soaring debt and drastic lockdown measures. As a result, China’s national economy shrunk for the first time in decades. Hubei province saw its economy shrink nearly 40 percent in the first quarter of 2020. 

Yet China has weathered the coronavirus storm better than many other countries. Many businesses, factories and congregational spaces have already started re-opening. This is even the case in Wuhan, the original epicenter of the outbreak. Given China’s population of over 1.4 billion, curbing the spread of COVID-19 is an incredible feat.

Media outlets have pointed to various factors contributing to China’s swift response. For example, the country’s centralized healthcare system helped standardize prevention measures. A largely overlooked factor, though, is China’s high savings rate. Chinese households and companies save more than most other countries in the world. Since the 1980s, national savings has comprised around 40 percent of GDP. This is far greater than the average of 15 percent for developing countries. Household savings account for most of this difference—about 20 percent of GDP. 

The coronavirus epidemic no doubt jeopardized the financial security of many families. But high savings helped reduce its harmful effects. Below are three explanations for this phenomenon: 

  1. 1 Privatization during Reform and Opening Up


    Mao Zedong believed that China should strive for economic self-sufficiency. Based on this philosophy, he oversaw the collectivization of farming in rural areas. In urban centers, the state assumed control of private enterprises. The party-state thus wielded influence over all aspects of economic activity. It provided people with work assignments, salaries and social benefits. This dynamic changed when Deng Xiaoping assumed power. In 1978, he launched a bold economic reform program known as 改革开放 (Gǎigé kāifàng), or “Reform and Opening Up.” 

    Deng's economic program loosened the chokehold of collectives on the agricultural sector. It additionally allowed private businesses to open and encouraged foreign investment. These initiatives rapidly accelerated China’s economic growth. However, they also created an environment of immense uncertainty. Millions of workers lost their state-regulated jobs and had to secure a new source of income. The government also shifted the burden of retirement planning onto individuals. These developments contributed to an increase in precautionary savings among China's working class.

  2. 2 The One-Child Policy (1980-2016)


    Demographic changes might also account for China’s high household savings rate. For decades, the country attempted to put the breaks on its soaring population growth. Officials first encouraged the use of birth control and family planning. Eventually, the government implemented the one-child policy. This policy limited most Chinese families to one child. Because having fewer children requires less spending, the savings of Chinese households jumped.

  3. 3 Chinese language


    A subtler cause of China’s high savings rate is the way in which language influences cultural norms. According to Keith Chen, a behavioral economist at UCLA, “languages with obligatory future-time reference lead their speakers to engage in less future-oriented behavior.” While speaking Mandarin, people do not have to specify the past or the future. This breaks down the perceived barrier between past and future events. As a result, Mandarin speakers are more inclined to prioritize their future well-being. 

    Chen explains that the lack of tenses carries huge implications for savings behavior. He finds a correlation between this grammatical feature and greater national savings rates. Speakers of such languages also set aside more for retirement. Language is not necessarily the cause of China's high savings rate. Indeed, more research is needed to confirm it is not the result of some deeper cultural attitude. Still, it presents a fascinating solution to China’s savings puzzle. 


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Trey Sprouse

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