Housing Prices and the High Chinese Saving Rate Puzzle
Federal Reserve Bank of St. Louis& Tsinghua University
China’s over 25% aggregate household saving rate is one of the highest inthe world. One popular view attributes the high saving rate to fast-rising housing prices inChina. However, cross-sectional data do not show a significant relationship betweenhousing prices and household saving rates. This article uses a simple consumption-savingmodel to explain why rising housing prices per se cannot explain China’s high householdsaving rate. Although borrowing constraints and demographic changes can translatehousing prices to the aggregate saving rate, quantitative simulations of our model usingChinese time-series data on household income, housing prices, and demographics indicatethat rising mortgage costs can increase the aggregate saving rate by at most 2 to 4percentage points in the best down-payment structure.
Chinese Economy, Housing, Saving Rate, Borrowing Constraints,Housing Reform.
D14, D91, E21, I31, R21
* A shorter version of this paper appeared in the Federal Reserve Bank of St. Louis
, March/April 2011,93(2) 67-88. We thank Jiandong Ju, Yue Liu, Qing Liu, Xue Qiao, Xinzheng Shi, Michael Zheng Song, XiaoxiaWang, Ziru Wei, Binzhen Wu, Weilong Zhang, Xiaohan Zhong, and two anonymous referees for helpful comments,Zhenjie Qian for sharing data and Judy Ahlers for editorial assistance.