A Model of Household Savings and Alternative Investments in Rural China*

Yuekai Cheng (), Hongyi Li (), Qi Sun () and Yu Wang ()
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Yuekai Cheng: Research Department Minsheng Securities 17 Floors, Block A, Minsheng Financial Center 28 Jianguomennei Street, Dongcheng District Beijing, China
Qi Sun: School of Business Administration Academy of Zheshang Entrepreneurship Zhejiang Gongshang University 18 Xuezheng Street High Education Park, Xiasha District Hangzhou, China
Yu Wang: Business School Chinese University of Hong Kong Room 951, 9/F Cheng Yu Tung Building 12 Chak Cheung Street Shatin, N.T., Hong Kong

Asian Economic Papers, 2019, vol. 18, issue 2, 145-162

Abstract: This paper explores the relationship between monetary policy, prices, and rural household savings and investment behavior in China. We first develop a two-period life-cycle model with bequests for China's rural economy to analyze the impacts of interest rates, agricultural product prices, and housing prices on rural households’ capital allocation choices (households’ savings deposits, investment in private housing, and investment in agricultural productive fixed assets). We then empirically estimate the theoretical model equations with a newly compiled panel dataset covering the rural areas of 26 provinces from 2001 to 2016. Our empirical results suggest that high housing prices are harmful to the rural economy as they reduce productive investment and consumption. An efficient interest rate market and land tenure system reform are recommended.

Date: 2019
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