Consider these - private consumption in China has fallen precipitously from 46% of GDP in 2000 to a measly 35%, the lowest among all major economies; urban Chinese household savings have doubled from 15% in the early 1990s to over 30% in recent year.
Rectifying these imbalances in the Chinese economy is critical to addressing the global macroeconomic imbalances that are atleast partially responsible for the current global economic crisis.
Economists Marcos Chamon, Kai Liu and Eswar Prasad studied Chinese statistical surveys of household incomes dating back to the 1980s and attribute the Chinese savings trend to the uncertainty Chinese feel about their income and the market-oriented nature of Chinese reforms. The heightened uncertainty forces the Chinese into saving a larger proportion of their income even in a rapid-growth economy.
They argue that the new nation-wide contributions-based pension scheme ('individual accounts' that hold retirement contributions from both employer and employee), introduced in 1997, replacing the companies' (mostly state-owned) based pensions scheme, has increased uncertainty among employees. Further, the economic reforms and the entry of multi-national firms have made the life of the average young Chinese worker riskier - private sector jobs do not guarantee job security. The proportion of workers employed in the state-owned companies fell dramatically from 81% in 1989 to 64% in 2006. And even for the state-employees, the terms of employment are not as secure as they used to be.
Accordingly, a U-shaped savings pattern has emerged - younger people save more to create a 'buffer' against greater income uncertainty and older folks save for their retirement. They write,
"Higher income uncertainty and pension reforms can together explain much of the rise in average savings among urban households in China…Moreover, the calibrated response to saving rates implies changes to the cross-section of savings over time that are sharper among households at the two ends of the age distribution of household heads. Even 10 years after the initial increase in uncertainty and pension reform, we estimate the youngest and the oldest households save 5 percentage points more than before those changes, compared to only 2.5-3.5 percentage points more for those in their late thirties-early forties."