Challenges for China’s economic development: the saving glut and policy implication

Kevin Luo () and Tomoko Kinugasa ()
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Kevin Luo: Kobe University
Tomoko Kinugasa: Kobe University

International Journal of Economic Policy Studies, 2020, vol. 14, issue 1, No 4, 47-75

Abstract: Abstract This study begins by confirming that China today has been in a severe state of overaccumulation, which jeopardizes the sustainable development and economic potential of Chinese economy. Against this backdrop, we employ the generalized method of moments (GMM) to investigate the determinants of Chinese household saving. We present novel evidence on saving behaviors and identify a part of important empirical regularities. More importantly, we find that factors that have contributed to China’s economic success (e.g., the SOE reform) are primarily responsible for the excess saving problem, and those generally deemed to be negative factors (e.g., real estate bubble) have essentially mitigated the surplus saving. This evidence indicates that China has achieved economic success through capital-extensive growth models, which rely critically on excess investment and saving accumulation. We emphasize the imperative for Chinese economy to rebalance its growth model and create a more consumption-oriented environment. We also emphasize the importance of analytical stance in deriving constructive policy prescriptions.

Keywords: China; Household saving; Over-accumulation; GMM estimator; Policy design (search for similar items in EconPapers)
JEL-codes: C33 D12 E21 G28 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s42495-019-00032-y

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