Sonia Kapoor, Thought Leadership, Nielsen China
Chinese consumers are notorious savers. They consistently show a high saving rate — the highest in the Asia Pacific region and substantially higher than developed economies like those of the United States and the United Kingdom. And while economic theory based on forward looking models suggest that countries experiencing strong GDP growth should see a drop in savings rate, China’s savings rate has continued to remain high despite its remarkable GDP growth.
A popular explanation is that China’s legendary savings habit is influenced by the Confucian values of thrift and frugality. But does this theory apply in the present day?
While the notion of not going into debt is a strong traditional sentiment in China and many East Asian countries, Nielsen’s research shows that aversion to debt is slowly changing. As incomes grow and attractive loan schemes and investment opportunities present themselves, Chinese are keen to avail themselves of them, proof that the cultural factors may not be telling the full story.
Nielsen takes a deeper look into the strength of the frugality hypothesis by exploring non-cultural factors that may have a role in explaining China’s high savings rate.
So Why Do Chinese Save So Much?
Nielsen’s research reveals that three key factors play a stronger role in explaining the savings rate than the frugality theory:
- Young DemographicsSince the late 1980’s, China’s demographics have favored the younger working group, defined by economists as Prime Savers (20-49 years). Typically this group displays a higher propensity to save as it has to finance a variety of life-stage needs.
- Big ExpensesA comparative cost index analysis between first jobbers in China and the United States was conducted to get a deeper look at their saving needs and how they are likely to fund these expenses. Taking into account expenses such as weddings, the purchase of a house, children’s education and the purchase of durables, the research shows that Chinese consumers need to save a greater portion of their salary to fund these expenses than their U.S. counterparts.
- Medical and Post-Retirement CostsChina’s social security funds are much lower than those in developed economies, representing just 2% of the country’s total household wealth compared to the U.S. level of 20%. Precautionary savings to cover medical and post-retirement expenses remain an important factor in explaining China’s high savings rate.
Read Nielsen’s full report: Saving a Top Priority for Chinese…But Why?