Household Finance in China / Russell Cooper, Guozhong Zhu.

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Cooper, Russell

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w23741.Publication details: Cambridge, Mass. National Bureau of Economic Research 2017.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper uses a lifecycle model to study household finance in China, focusing on the high savings rate, the low stock market participation rate and the low share of stocks in wealth. We control for important regime changes in China in the estimation of structural parameters, and examine their impacts on household finance patterns. Relative to the US, the distinctive financial choices of households in China are driven by institutional factors, such as labor market risks and costs of asset market participation, as well as by differences in preferences. Specifically, large stock market participation and adjustment costs along with high stock market volatility in China lead to the relatively low stock market participation rate and the low share of stocks in wealth conditional on participation, but they contribute little to the high savings rate. The high savings rate in China is driven mainly by high labor market risks and the patience of households. Given the estimated differences between China and the US in preferences, the model predicts that households in China would continue to save more than their US counterparts even if institutional differences disappear.

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Previous	nber w23739 Welfare-Consistent Global Poverty Measures /	nber w2374 Negotiated Trade Restrictions with Private Political Pressure /	nber w23740 Credit Growth and the Financial Crisis: A New Narrative /	nber w23741 Household Finance in China /	nber w23742 Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets /	nber w23743 The Gender Unemployment Gap /	nber w23744 Education Technology: An Evidence-Based Review /	Next

August 2017.

This paper uses a lifecycle model to study household finance in China, focusing on the high savings rate, the low stock market participation rate and the low share of stocks in wealth. We control for important regime changes in China in the estimation of structural parameters, and examine their impacts on household finance patterns. Relative to the US, the distinctive financial choices of households in China are driven by institutional factors, such as labor market risks and costs of asset market participation, as well as by differences in preferences. Specifically, large stock market participation and adjustment costs along with high stock market volatility in China lead to the relatively low stock market participation rate and the low share of stocks in wealth conditional on participation, but they contribute little to the high savings rate. The high savings rate in China is driven mainly by high labor market risks and the patience of households. Given the estimated differences between China and the US in preferences, the model predicts that households in China would continue to save more than their US counterparts even if institutional differences disappear.