EconomicsResearch22September2025|9:30AMHKT

ASIAINFOCUS

China:HowtoEncourageHouseholdstoSpend?AGlobalPerspective(Yang)

nChina’shouseholdsavingsrateisthehighestamongmajoreconomies.As

policymakersstarttofocusonboostingconsumptionforamoresustainable

growthmodel,thequestionofhowtoreducehouseholdsavingsremainslargelyunanswered.ThereisgenerallyapositivecorrelationintherelationshipbetweenpercapitaGDPandnationalsavingsratesacrosstheworld,implyingfurther

economicdevelopmentwillnotnecessarilyreduceChina’ssavingsrateonitsown.Inthisnote,weexamine?ndingsbothinacademicliteratureand

internationalprecedentswherethehouseholdsavingsratedeclinednotablytodrawlessonsforChina.

nAcademicliteraturesuggeststhatthehouseholdsavingsrateexhibitsaclear

correlationwithcertainfactorssuchas?scalpolicies(i.e.,highergovernment

savingsleadtolowerprivatesavings),demographics(i.e.,populationagingleadstolowersavingsrate),socialsafetynet,accesstocredit,andhousingandstockmarketwealth.Ontheotherhand,itsrelationshipswithsomeotherfactorssuchasinterestrateandinflationappearempiricallyambiguousandnonlinear.

nWeidentify15episodesacrosslargeOECDcountriessince1990inwhich

householdsavingratesdeclinedbyatleast3percentagepoints.Primarydriversbehindtheseepisodesincludeeconomicslowdown,taxincreases,increased

consumerborrowingfacilitatedbylowerinterestratesandrisingassetprices,andachangingdemographicstructure.

nMovingforward,demographicshiftsinChinaareexpectedtoreducethe

householdsavingsrateby2ppoverthenext10years.Inascenariowherethe

governmentsigni?cantlyimprovesthesocialsafetynet,stabilizesproperty

prices,andequitypricescontinuetorise,theChinesehouseholdsavingsrate

coulddeclineacumulative3-4ppoverthenextdecade.However,thisstillimpliesthatthehouseholdsavingsratewouldstaycloseto30%inChinaformanyyearstocome,barringmajoreconomicor?scalshocks.Therefore,themostimportantdriverofconsumptioninChinaisstilllikelytobeincomegrowth,inourview.

AndrewTilton

+852-2978-1802|

andrew.tilton@

GoldmanSachs(Asia)L.L.C.

HuiShan

+852-2978-6634|

hui.shan@

GoldmanSachs(Asia)L.L.C.

LishengWang

+852-3966-4004|

lisheng.wang@

GoldmanSachs(Asia)L.L.C.

XinquanChen

+852-2978-2418|

xinquan.chen@

GoldmanSachs(Asia)L.L.C.

YutingYang

+852-2978-7283|

yuting.y.yang@

GoldmanSachs(Asia)L.L.C.

ChelseaSong

+852-2978-0106|

chelsea.song@

GoldmanSachs(Asia)L.L.C.

Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcerti?cationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html

.

GoldmanSachsAsiainFocus

China:HowtoEncourageHouseholdstoSpend?AGlobalPerspective

China’seconomicgrowthoverthepastfewdecadeshasreliedonexportsand

investment,featuringsharplyrisingdebtlevelsandfallingreturnsoninvestment.Amidincreasedtradetensions,aseverehousingdownturn,andlocalgovernmentimplicitdebtdeleveraging,thegovernmenthasincreasinglybeenlookingatconsumptionasa

potentiallong-termgrowthengine.However,Chinesehouseholdsavingsrateremainsthehighestamongmajoreconomies,anditisunclearhowthiscanbereduced.Inthisnote,weexamineboth?ndingsinacademicliteratureandinternationalprecedentswherehouseholdsavingsratedeclinednotablytodrawlessonsforChina.Although

China’spopulationagingcombinedwiththegovernment’spotentialeffortsto

strengthenthesocialsafetynet,stabilizepropertyprices,andsupporttheequity

marketcouldhelplowerthehouseholdsavingsratetosomedegree,bothacademicresearchandglobalhistoricalexperiencesuggestthatitwillbedifficulttoreducethehouseholdsavingsratesigni?cantly,barringmajoreconomicor?scalshocks.

BackgroundonChina’ssavingsrate

Thereare

twodifferentmeasures

ofhouseholdsavingsrateinChina,onefromtheflowoffundsdataandtheotherfromtheNBShouseholdsurvey(Exhibit1).Whilethetwo

seriesshowsigni?cantdifferencesduetovariousmeasurementissues,theybothshowthatChinahasoneofthehighesthouseholdsavingsratesintheworld,evenwhen

comparedwithotherEastAsiaeconomiessuchasJapanandKoreawhentheywereatasimilardevelopmentalstagetoChina(Exhibit2).Ourpreviousresearchshowsthat

urbanization,risinghousepricesamidstronginvestmentdemandforhousing,and

strongprecautionarysavingmotivesduetothelackofacomprehensivesocialwelfaresystemaresomeofthereasonsbehindChina’selevatedandstillrisinghouseholdsavingsrate(seeourpreviousreport:

Lowerhousingcostburdenscanlowerthesavingsratein

China,butcon?denceremainskey

formoredetails).

Exhibit1:BothflowoffundsandhouseholdsurveydatashowaveryhighhouseholdsavingsrateinChina

45

45

40

35

30

25

20

15

40

35

30

25

20

15

PercentPercent

Chinesehouseholdsavingsrate

FlowoffundsHouseholdsurvey-

9294969800020406081012141618202224

Householdsavingsrate(Percent)

45

40

35

30

25

20

15

10

5

0

-5

Exhibit2:China’shouseholdsavingsrateisnotablyhigherthanthatofothercountries

HouseholdsavingsrateandGDPpercapita

Othercountries

China

Japan

Korea

01020304050607080

GDPpercapita(PPP,constant2021internationaldollar)

Source:Wind,CEIC,GoldmanSachsGlobalInvestmentResearchThedatapointsspantheperiodfrom1990to2022.

Source:OECD,GoldmanSachsGlobalInvestmentResearch

Savingsratesincrease,notdecline,asincomegrows

Atthemicrolevel,economictheoriessuchaspermanentincomehypothesisand

life-cyclemodelsuggestthathouseholdsallocateforconsumptionandsavingsbasedon

22September20252

22September20253

theirexpectedlife-timeincomesubjecttootherfactorssuchascreditconstraints.Forexample,whenconsumercon?denceregardingfutureemploymentandincome

improves,consumptionincreasesinthecurrentperiod,whichreducesthesavingsrate.

Atthemacrolevel,weexaminethenonlinearrelationshipbetweenincomeandnationalsavingsrateusingWorldBankcross-countryhistoricaldata.1Speci?cally,weemployasplineregression,whichallowstherelationshipbetweenincomeandsavingsrateto

differatdifferentincomelevels,aftercontrollingforcountry?xedeffects.

We?ndthatthereisgenerallyapositivecorrelationbetweenpercapitaGDPandthe

savingsrate(Exhibit3).Atverylowincomelevels,householdconsumptionismainly

composedofessentialgoods,resultinginarelativelylowsavingsrate.Asincomelevelrises,individualsgenerallyincreasetheirconsumptionataslowerrate,whichresultsinahighersavingsrateovertime.Allelseequal,ourestimatessuggestthatChina’snationalsavingsrateisunlikelytodeclinesigni?cantlyfromincomegrowthaloneinthecomingyears.

Nationalsavingsrate(%ofGDP)

70

60

50

40

30

20

10

0

-10

Exhibit3:Savingsratesgenerallyrisewithincomeandstabilizesafterreachingcertainincomelevels

OOt ●ChSp

hercountriesina

lineregression

13.21032100

GDPpercapita(PPP,thousandconstant2021internationaldollar)

Thedatapointsspantheperiodfrom1990to2021.

Source:WorldBank,GoldmanSachsGlobalInvestmentResearch

Driversofhouseholdsavingsbasedonacademicliterature

Thereissizeableliteratureinvestigatingthefactorsthatinfluencehouseholdsavingsfromboththeoreticalandempiricalperspectives.Wesummarizesomeofthekey

?ndingsinExhibit4.

Fiscalpolicy:AccordingtothetheoryofRicardianequivalence,adecreaseinthegovernment’ssaving(thatis,alargerbudgetde?cit)shouldnotaffecttotalsavingsbecauseprivatesavingshouldincreasecommensuratelyasfullyrational,

forward-lookinghouseholdsandcorporatesanticipatehighertaxesinthefuture.

Empiricalstudies,however,suggestthatacompleteoffsetisrarelyobserved;instead,partialoffsetsaremorecommon.2

Demography:Inalife-cyclemodelwherebequestmotivesarenottoostrong,both

1Inthisanalysis,weusenationalsavingsrate,whichincludesgovernment,corporateandhouseholdsavings,ashouseholdsavingsrateisnotavailableformanyEMcountries.

2SeeforexampleDeMello,L.,P.M.Kongsrud,andR.Price,2004,“SavingBehaviorandtheEffectivenessofFiscalPolicy”,OECDEconomicsDepartmentWorkingPaper.

22September20254

youngerandolderindividualsarelikelytohavelowsavingsrates,whereasthe

working-agepopulationtendstosavemoretorepaydebtsandprepareforretirement.Therefore,populationagingtypicallyleadstoaloweroverallsavingsrate.

Socialsafetynet:Thelinkagebetweensocialsafetynetandsavingsworksthroughtheuncertaintieschannel.Lackofadequatesocialprotectionsystemsshouldinduce

householdstoself-insurebyincreasingsavingsagainstrisksoffuturejoblosses,healthemergenciesandlivingmuchlongerthanexpected.

Accesstocredit:Standardmodelsindicatethatthesavingsrateshouldfallasaresultofimprovedaccesstocredit.Amoredeveloped?nancialmarketandbetteraccessto

credittendtoreduceprecautionarysavingsmotives.Theestimatedeffectofcredit

expansiononconsumptionisoftenquitelarge.Thatsaid,acredit-drivenconsumptionboomtypicallydoesnotlastforlongasevidencedbytheUSMortgageEquity

Withdrawal(MEW)inthe2000sandthesubsequentsubprimecrisis.

Wealtheffects:Changesinwealth,whetherthroughfluctuationsinassetpricesorshiftsinperceivedfutureprosperity,caninfluenceconsumptionandsavingsbehavior.Whenhouseholdsexperienceanincreaseintheirnetworth—perhapsduetorisingrealestateorstockmarketvalues—theymayfeelmore?nanciallysecureand,asaresult,reduce

theirsavingsrateinfavorofhigherconsumption.Whilethetheoreticallinkageisclear,empiricalestimatesvaryacrosscountries,assettypes(e.g.,housingvs.equitywealth),andresearchmethodology.

Interestrates:Theoretically,lowerinterestratesencouragepresent-dayconsumption(asopposedtofutureconsumption)byreducingtheexpectedreturnsonsavings.

Empirically,however,theeffectcanbemitigatedbytheincomeeffect(e.g.,depositorscutdownconsumptiononlowerexpectedinterestincome)andbehavioralfactors(e.g.,householdsthattargetcertainlevelsofsavingswouldsavemorewheninterestincomedeclines).

Inflation:Whenhouseholdsexpecthigherpricesinthefuturerelativetoreturnsonsavings,theyarelikelytoconsumemoretoday.Wheninflationisextremelyhigh,

householdstrytospendtheirincomeassoonaspossible.

OtherfactorsspecifictoChina:TheliteraturehasalsodocumentedimportantfactorsaffectingsavingsthatareuniqueinChina.Forinstance,somestudiesshowthatthe

one-childpolicywasasigni?cantdriverofChina’shighsavingrates.3Relatedly,thehighmale-to-femaleratioinChinaalsocontributedtohighersavingsbecauseChinese

parentswithsonsmaycompetitivelyincreasetheirsavingstoenhancetheirsons’relativeattractivenessinthemarriagemarket.4

3See?mrohoro?luandZhao,2018,“TheChinesesavingrate:Long-termcarerisks,familyinsurance,anddemographics“,JournalofMonetaryEconomics.

4SeeWeiandZhang,2011,“TheCompetitiveSavingMotive:EvidencefromRisingSexRatiosandSavingsRatesinChina.”JournalofPoliticalEconomy.

22September20255

Exhibit4:Driversofhouseholdsavingsratebasedonliteraturereview

Driversforsavingsrate

Researchpaper

Sample

Findings

Macroeconomy

Fiscalpolicy

DeSerresandPelgrin(2002)

15OECDcountries

Highergovernmentsavingsleadtolowerprivatesavings

Termsoftrade

Grigoloetal.(2016)

165countries

Improvedtermsoftradeleadtohigherincomeandhighersavings

Realinterestrate

Hondroyiannis(2006)

13Europeancountries

Higherrealinterestrateencouragessavings

Inflation

Loayzaetal.(2000)

150industrialanddevelopingcountries

Highinflationmayraisesavingsratethroughhigheruncertaintiesperceivedbyhouseholds

Demographics

Populationaging/dependencyratio

Lietal.(2006)

149countries

Asthepopulationages,morepeoplestartspendingtheirsavingsandthenumberofsaversgoesdowncomparedtospenders

Socialsafetynet

Healthcare

ChamonandEswar(2010)

Taiwan

TheintroductionofuniversalhealthinsuranceinTaiwanloweredthehouseholdsavingsrateby2.5pp

Socialsafetynetexpansion

Bergeretal.(2021)

MainlandChina

Astrongersocialsafetynetreducessavingsforjoblossesandmedicalemergencies

Accesstocredit

Increasedaccesstocredit

Garner,C.A.(2006).

US

OnereasonpeopleintheU.S.startedsavinglessisthatmorehouseholdswereabletoborrowmoneyeasily,whichreducedtheirneedtosave

Wealtheffects

Wealtheffects

HüfnerandKoske(2010)andJusteretal.(2006)

G7andUS

Increasedrealestateandequitymarketwealthincreasesconsumptionandreducessavings

Houseprices

Zhangetal.(2018)

MainlandChina

Higherhousepricescouldraisesavingsduetohighermortgagepayments,butcouldalsoreducesavingsonwealtheffects

Undertainties

Higherincomeuncertainty

DIW(2006)

Germany

LabormarketreformsinGermanyledtohighersavingsduetoincreaseduncertainties

Source:DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Notethattheabove-mentioneddriversarenotmutuallyexclusiveandcaninteractwitheachother.Forexample,fallinginterestrates,risingassetprices,andlooseninglendingstandardswouldbeapowerfulcombinationthatreinforceseachother.Researchhas

shownthatboththelevelandtheassociateduncertaintymattertotheeffectofinflationonhouseholds’consumptionandsavingsdecisions(e.g.,higherinflationencourages

consumptionbuthigheruncertaintiesaboutinflationincreasesavings).

Casestudies:pastinternationalepisodesofsavingsratedeclines

Todrawlessonsfromothercountries’experience,weexaminehistoricalOECDdataonhouseholdsavingsrate.Ingeneral,therearefewcasesoflarge,sustaineddeclinesinhouseholdsavingsrate.ItalyandJapanaretwoprimeexamples.

InthecaseofItaly,thehouseholdsavingsratehalvedfrom16%in1995to7%in2000,as?scalconsolidationinpreparationfortheEuropeanUnionestablishmentledto

declinesinprivatesavings.Italy’shouseholdsavingsratefellagainduringtheGFCandEuropeansovereigndebtcrisis,decliningbelow2%by2012(Exhibit5).InthecaseofJapan,thehouseholdsavingsratedroppedfrom13%in1994tobelow3%bytheearly2000s(Exhibit6).Researchshowsthatacombinationofdemographicchanges,weakeconomicgrowth,andlowinterestratesweredrivingthehouseholdsavingsratelower.

GoldmanSachsAsiainFocus

22September20256

Exhibit6:Japan’shouseholdsavingsrateexperiencedasigni?cantdeclineinthe1990s

Exhibit5:ThehouseholdsavingsratedeclinedsharplyinItalyinthelate1990sandagainaround2010

18

16

14

12

10

8

6

4

2

0

PercentPercent

HouseholdsavingsrateinItaly

1995199920032007201120152019

PercentPercent

HouseholdsavingsrateinJapan

1994199820022006201020142018

14

12

10

8

6

4

2

0

-2

14

12

10

8

6

4

2

0

-2

18

16

14

12

10

8

6

4

2

0

Source:OECDSource:OECD

Toobtainalargersampleofhistoricalprecedents,weidentify15episodesacross8

OECDcountries(withpopulationsexceeding20million)since1990inwhichhouseholdsavingratescumulativelydeclinedbyatleast3percentagepoints(Exhibit7).WelayoutthefactorscontributingtodecliningsavingsratesinExhibit8.

First,householdsavingsratesdeclinedduring?nancialcrisesandeconomicslowdownsasunemploymentroseandconsumptiondidnotdropasmuchasincome.Clearly,thistypeofsavingsratedeclineisundesirable.

Second,substantialincreasesinpublicsectorsavings,resultingfrom?scalconsolidationefforts,ledtolowerhouseholdsavingsrate.Manyofthoseepisodesinthe1990sshowninExhibit7fallintothiscategory.While?scalconsolidationiseffectiveinreducing

privatesavings,theycanbepainfulforhouseholds.

Finally,studieshavelinkedthedeclinesinhouseholdsavingsrateto?nancialdeepening(e.g.,Poland),wealtheffects(e.g.,theUS),andlowerinterestrates(e.g.,Canada).5Thesedriverswerehappeningatthesametimeintheearly2000s,whichdrovehousehold

savingsratelowerindifferentcountries.

Exhibit7:15episodesofhouseholdsavingsratefallingmorethan3ppcumulativelyinOECDcountries

Australia

Canada

Italy

Japan

Poland

Spain

UK

US

Weidenti?edthreeperiodsforUK,including1995-1999,2010-2014and2015-2018.

Source:OECD,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

5SeeKolasaandLiberda,2015,“DeterminantsofSavinginPoland:AreTheyDifferentfromThoseinOtherOECDCountries?”,EasternEuropeanEconomics.

GoldmanSachsAsiainFocus

22September20257

Exhibit8:Majordriversbehindthedeclineofsavingsrate

Keydrivers

Examples

Financialcrisisandeconomicslowdown

Italy(2004-12),UK(2010-14,2015-18)

Fiscalpolicy(decreasedgovernmentspending,taxreform)

Canada(1992-97),Australia(1996-99),Italy(1996-2000),Spain(2003-07)

Financialdeepeningandwealtheffects

Poland(2001-05),UK(1995-99),US(2002-05)

Interestrateandinflation

Canada(2000-03)

Populationaging

Japan(1998-2004)

Source:DatacompiledbyGoldmanSachsGlobalInvestmentResearch

LessonsforChina

Globalhistoricalexperiencessuggestthatitisquitechallengingtoreducethehouseholdsavingsratemeaningfully.Someofthecatalyststhatwehaveobservedfromthepast

suchas?nancialcrisisandsustainedgrowthslowdownareundesirable,whileother

driverssuchas?scalconsolidationcanbepainful.Increasedaccesstocreditboosts

consumptionandreducessavings,butwithoutimprovedincomeprospects,theimpacttendstobetemporarysinceleveragecannotkeeprisinganddebteventuallyneedstoberepaid.

Butthereareafewthingspolicymakerscoulddotohelplowerhouseholdsavingsrate.First,China’s

socialsafetynet

stillhasinsufficientcoverage(forthe200millionflexibleworkers)andrelativelylowbene?ts(e.g.,medicalinsurancedoesnotcapout-of-pocketliabilitiesandbasicpensionsforruralhouseholdsareminimal).Strengtheningthesocialsafetynetshouldhelpreduceprecautionarysavingsbyhouseholds.AcademicresearchestimatesthattheimplementationoftheSocialSecurityLawinJuly2011,which

formallyde?nedemployers’responsibilitiestoprovidesocialinsuranceforemployees,ledtoa0.9percentagepointdecreaseinthehouseholdsavingsrate.6

Second,Chinapledgedtostabilizethepropertyandstockmarketsforthe?rsttimein

the

CentralEconomicWorkConference

lastDecember.Whileequitymarketshaveralliedsigni?cantlyyear-to-date,housepriceshavecontinuedtodecline.Inascenariowherepropertypricesstabilizeinthenextyearortwo,aportionofthe“

excesshousehold-

deposits

”isredirectedtotheequitymarket(Exhibit9),andtheupwardtrendinthe

stockmarketcontinues,increasesinthewealtheffectmayreducethehouseholdsavingsratemodestlyinthecomingyears(Exhibit10).

Third,therehasbeen

anecdotalevidence

thatmanyyoungworkerschoosetoforegosocialsecuritycontributionsduetoconcernsthatsocialsecurityfundsmaybe

exhaustedbythetimetheyretire,leadingtobene?tscutsandevenunpaidpensions.

China’sSupremeCourtrecently

released

ajudicialinterpretationthatinvalidates

contractswhereemployersandworkersagreetowaivemandatorysocialinsurance

payments,effectiveSeptember1stthisyear.

Headlines

aboutlocalgovernmentsunder?nancialstressdelayingpayingwagestocivilservantsarealsonothelpfulinboosting

consumption.Policiesthatinstillcon?denceinChina’s?scalsustainabilityareimportanttoreducingthehouseholdsavingsrate.

6SeeHeetal.,2023,“EffectsofSocialSecurityContributionsonLaborEmployment,WagesandHouseholdSavings:NewEvidencefromMonthlyHouseholdPanelData”,TheJournalofWorldEconomy.

22September20258

Exhibit9:Therearesizeable“excess”householdbankdepositsinChina

TrillionRMBTrillionRMB

China'shouseholdbankdeposits

Pre-Covidtrend

deposits

180

160

140

120

100

80

60

40

20

0

20102011201320142016201720192020202220232025

180

160

140

120

100

80

60

40

20

0

Total

Source:HaverAnalytics,GoldmanSachsGlobalInvestmentResearch

Exhibit10:Populationaging,astrongersocialsafetynet,andwealtheffectscouldreduceChina’shouseholdsavingsratemodestly

Chinesehouseholdsavingsrate

Populationaging

Populationaging+enhancedsocialsafetynet

--Populationaging+enhancedsocialsafetynet+wealth

effectfromstockmarket

Actual

PercentofdisposableincomePercentofdisposableincome

36

34

32

30

28

26

24

22

20

20052008201120142017202020232026202920322035

36

34

32

30

28

26

24

22

20

Source:CEIC,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Evenifallofthesematerialize,Chinesehouseholdsavingsrateislikelytoremainelevatedfortheforeseeablefuture.Wepreviously

estimated

thatpopulationagingandtherisingold-agedependencyratiowouldreducethehouseholdsavingsrateby2ppoverthe

comingdecade.Signi?cantstrengtheningofthesocialsafetynetcouldlowerthe

householdsavingsratebylessthan1ppover10years,basedonestimatesfrom

academicresearch.Underrelativelyoptimisticassumptions,equitymarketwealtheffectcanbeamodesthelpinloweringChina’shouseholdsavingsrate.Whencombined,theywouldreducethehouseholdsavingsrateby3-4ppfromcurrentlevelsby2035(Exhibit-10).ButthisstillimpliesthatChinesehouseholdswillsavearound30%oftheir

disposableincome,barringmajoreconomicor?scalshocks.Therefore,themost

importantdriverofconsumptioninChinaisstilllikelytobeincomegrowth,inourview.WethankXinchenXie,aninternoftheAsiaEconomicsteam,forhercontribution.

YutingYang

GoldmanSachsAsiainFocus

22September20259

DisclosureAppendix

RegAC

We,AndrewTilton,HuiShan,LishengWang,XinquanChen,YutingYangandChelseaSong,herebycertifythatalloftheviewsexpressedin