PUTTING A PROPORTION of your earnings into savings is normally considered a good thing. But it’s bad news when government economists need that cash in circulation to keep the economy moving.
That’s the challenge for Beijing. Chinese people put more of their money into savings than people anywhere else on the planet.
Even though it is still a developing country, 35% of income is saved on average. This is twice as high as the US’s 17%, three times as high as European Union countries 10.74%, and much higher than the UK’s 6.91%. All figures shows savings as proportion of earnings, and come from Statista.
Normally, frugality is seen as a positive thing—but when the Chinese government is trying to switch its economy from property-led to consumption-led, it’s a massive problem.
SAVINGS AS A TRADITION
Some analysts believe this is unshakeable tradition. Chinese people regard frugality as a virtue and the best lifestyle choice. Others note that the savings rate has risen sharply in recent decades indicating that the trend is exacerbated by modern-day factors – such as the fact that couples tend to have only one child, or no children. Without the traditional large group of offspring to support them in old age, Chinese adults realize they need to have a solid retirement fund for themselves.
The people arguing that the savings habit is rooted in history, point to evidence from the past. Many ancient Chinese sages and scholars acted as role models for leading frugal living in history. During the Three Kingdoms period, renowned scholar and military strategist Zhuge Liang (諸葛亮) wrote a book (誡子書) to his son Zhuge Zhan (諸葛瞻), reminding him to strive for peace and stick to frugal living for the enhancement of moral virtue (靜以修身，儉以養德).
On the other side of the debate, the long recent period in which family sizes were limited, is a significant part of the problem. The one-child period upset the natural flow of responsibility – from time immemorial, parents have looked after children, and when the children grew to adults, they looked after parents. That is no longer guaranteed. If you have one or no children, a comfortable retirement stewarded by a large number of children and grandchildren is little more than a hope.
CHINESE HOUSEHOLDS HAVE HIGH SAVING RATE
Another argument in favor of a cultural/ historical origin for the high savings rate comes from Hong Kong. Although part of China, it is separately governed and people have always been free to have bigger families. Yet Hong Kong’s savings rate of 28% is also unusually high, almost as high as that of mainland China.
The amount of savings has been rising. Chinese household savings at banks in the Mainland surged by a record high of 17.84 trillion yuan in 2022, up more than 8 trillion yuan from 2021, according to the People’s Bank of China.
In Hong Kong, citizens put aside about HK$9,000 in their bank accounts each month, according to a survey conducted by the Hong Kong Deposit Protection Board (香港存款保障委員會) in December last year.
They likely learned this from their parents and grandparents. In a family-oriented society, older generations will pass habits such as saving down from generation to generation.
In some affluent Chinese families, parents financially support their adult children, paying for grand wedding banquets, and other expensive items. Of course, this is common in other cultures around the world, too, but perhaps less so in western cultures, where generational independence is more valued.
CHINESE HOUSEHOLDS DEBT AT LOW LEVEL
Chinese people generally do not engage in over-shopping to get into debt and they do not prefer loaning for consumption.
Instead, some consumers in Western countries have embraced “buying now, paying later” principle in their livings. Apart from home mortgage, they have used loans and credit cards to cover their daily needs – from purchases of cars and consumer goods to education. Amid high interest rates, some household debt in Western countries such as the US and Australia stand at high level.
In the Mainland, household debt, which involves mortgage payment and loans, accounted for 63.5% of the country’s gross domestic product in the second quarter of last year, according to a report issued by the Chinese Academy of Social Sciences’ National Institution for Finance and Development early last year.
Based on International Monetary Fund data, household debt in the Mainland accounted for about 61% of the country’s GDP in 2022. In contrast, western household debt levels are higher. The US and Britain’s household debt is at 74% and 83% of their countries’ GDP respectively. The household debt in Canada and Australia has been even higher, reaching 102% and 111% of their nations’ GDP respectively.
Today, young Chinese people have made up a large part of new generation of consumers in the Mainland. When some young Chinese consumers go shopping, they generally care more about value for money. They have valued products’ functionalities, personal preference and prices rather than brands.
They love sharing their shopping experience on Chinese-style social media Xiaohongshu, known as Little Red Book, over purchases of some consumer goods.
Young Chinese consumers read through online reviews and comments to seek the best deals. They have also gone through numerous promotion on e-commerce platforms such as Taobao and Tmall for best prices.
INITIATIVES TO BOOST SPENDING
Currently, the Central Government is striving to encourage consumers to spend money to boost domestic consumption households’ bank saving in the Mainland.
The Central Government wants to stimulate spending in sectors such as electric vehicles, appliances and home furnishing.
Beijing and Shanghai authorities offer subsidies to drivers purchasing electric vehicles. Buyers can receive a cash subsidy of 10,000 yuan if they purchase battery-powered vehicles this year.
Also, Shanghai authorities have offered subsidies up to 1,000 yuan to Chinese consumers to replace their old electric appliances with environmentally-friendly appliances such as air-conditioners, fridges, TVs and washing machines.
Chinese people’s traditional virtues of saving money for the future is continuing to be passed down through the generations. For government economists trying to move the country to being more of a consumption-oriented economy, this is a major challenge.
Image at the top from Javier Quiroga/Unsplash.