Chinas Consumption Driven Growth Path

A key policy question that China is facing is how to rebalance economic growth away from export/investment dependency to a consumption-driven growth path. It is a widespread believe that the main culprit of reduced private consumption as share of GDP is the rising household saving rate. It is often claimed that saving rates have remained so high due to precautionary savings by households caused by the lack of a well-functioning social security system. In order to implement adequate policies to increase household consumption, it is essential to know what drives Chinese household saving. This thesis conducts a panel analysis of the determinants of the household saving rate across Chinese provinces for the 2000-2010 period. The main findings are the presence of very strong saving inertia across urban and rural households and mixed effects of most other variables on urban and rural households. No evidence is found for precautionary saving driven by the lack of adequate social security.