Oct. 2005, Volume 4, No.10 (Serial No.

28) Chinese Business Review, ISSN 1537-1506, US A

A Positive Analysis on Personal Saving Rate between America and China

Wensheng Sun* Wei Li∗∗ Agricultural University of Hebei

Abstract: The level of saving not only influences the life of individuals, but also plays an important role in a
country’ s development. Accordingly, the studying on saving is becoming a focus problem in modern life. In recent
years, the personal saving rate in the United States has fallen sharply, but the personal saving rate in China is at an
astoundingly high level. This paper studies this problem with the positive analysis method from the situation; the
reasons of the saving rate disparity between the U.S. and China, and put forward some proposals about how to
deal with the saving problems.
Key words: saving rate positive analysis countermeasures

The level of saving is a very important index in modern life. There are two main reasons: first, it affects the
life of individuals; second, it affects the economy of a country. For individuals, saving is a way to boost income,
protect against a rainy day, buy a house, pay for the education of their children and provide for retirement. For the
country, it is also very important. Saving provides the financing for investment in physical capital (including plant
and equipment, commercial and residential buildings) and for research, so it plays an important role in a country’s
long run booming and sustainable development. Accordingly, the studying on saving is becoming a focus problem
that many researchers pay more attention to.
In recent years, the personal saving rate in the United States has fallen sharply, but the personal saving rate in
China is at an astoundingly high level. This paper studies this problem with the positive analysis method from the
situation, the reasons of the saving rate disparity between the U.S. and China, and puts forward some proposals
about how to deal with the saving problems.

1. The Notion of Personal Saving Rate

Usually, the personal saving is defined as the portion which is not consumed in the Disposal Personal Income.
It includes two implications: the wide implication and the narrow implication. The wide personal saving is the
sum of physical form and financial asset form. The narrow personal saving only means the financial asset form.
There are two methods about how to measure the personal saving rate. One method is the ratio of personal
saving and Gross Domestic Product, the other method is the ratio of personal saving and Disposable Personal
Income. According to the data acquired and compared, we choose the second method to calculate the personal
saving rate.
In both America and China, the Disposable Personal Income is defined as Personal Income (including wage
and salary income, net proprietors’income, transfer payments less social insurance, income from interest and

*
Wensheng Sun, Ph.D. of Renmin University of China, professor of College of Economics and Trade, Agricultural University of
Hebei; Main research fields: Economics and Management, Statistics and Demography; Address: College of Economics and Trade,
Agricultural University of Hebei, Baoding, Hebei, China, Postcode: 071001.
∗∗
Wei Li, postgraduate of College of Economics and Trade, Agricultural University of Hebei; Main research field: Industrial
Economics; Address: College of Economics and Trade, Agricultural University of Hebei, Baoding, Hebei, China, Postcode: 071001.

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 A Positive Analysis on Personal Saving Rate between America and China

dividends, and net rental income) subtracts tax and non-tax payment to the government. In U.S., the most
frequently cited measure is based on the National Income and Product Accounts. The personal saving total amount
is often used to measure the personal saving. In China, because of the dualistic economy system and the limitation
of data sources we choose the saving increasing amount of town and rural residents as the index of personal
saving.

2. The Contrast of Personal Saving Rate between U.S. and China

The personal saving rate in the U.S. has fallen over the past 20 years, from about 9.01% in 1985 to 1.75% in
2004. It is now at a very low level compared either to U.S. history or to the saving rate of other countries. Personal
saving has also fallen as with share of GDP. However, China’s personal saving rate is very high all the while. The
total amount of personal saving is increasing year by year and the increasing rate is much higher than the speed of
GDP. It forms a vivid contrast between American personal saving rate and Chinese personal saving rate. (It can be
seen from Table 1 and Chart 1.)
Table 1 The Table of Contrast of Personal Saving Rate between the U.S. and China in1985-2004
unit：%
year Chinese personal saving rate American personal saving rate
1985 8.05 9.01
1986 12.55 8.17
1987 9.38 6.98
1988 14.70 7.28
1989 15.17 7.14
1990 18.61 6.99
1991 18.77 7.26
1992 31.12 7.70
1993 29.91 5.78
1994 32.57 4.84
1995 28.45 4.64
1996 30.77 4.02
1997 30.46 3.65
1998 29.93 4.33
1999 27.63 2.37
2000 25.45 2.34
2001 25.37 1.77
2002 22.80 2.36
2003 25.78 2.12
2004 25.91 1.75

Data source: calculation based on the data of《Yearbook Of China (2004)》and http://www.bea.doc.gov/bea/dn/nipaweb/
TableViewFixed.asp#Mid.
We can see from Table 1 and Figure 1 that from 1985 to 2004, Chinese personal saving rate is much higher
than that of American all the while. American personal saving rate has almost fallen 7.26%. As for China, the
saving rate had been almost increasing before 1996. Although it fall a little after 1996, the whole level of the rate
is very high. From 1992, the personal saving rate of China was always higher 20% than that of American.

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 A Positive Analysis on Personal Saving Rate between America and China

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Figure 1 The Chart of Contrast of Personal Saving Rate between U.S. and China in 1985-2004

3. The Effecting Factors of Personal Saving Rate in U.S. and China

The personal saving is a portion of disposable personal income that is not be used as consumption, so it
means that we can apply the consumption theory to study the personal saving problem. There are many famous
theories about consumption (for example, the absolute income hypothesis and the comparative income hypothesis,
etc.) Combining all of these theories, we can conclude some factors which can influence the personal saving rate.
(1) Disposable personal income. Disposable personal income is the most important factors that can decide the
personal saving. According to Keynecians’ theory, the marginal consumption inclination decreases slowly,
therefore, the marginal saving inclination should have an increasing tendency. It means that with the increasing of
Disposable Personal Income, the personal saving should also increase.
(2) Gross domestic product. The high increasing rate of GDP may be the origin of high increasing rate of
saving. If the GDP of a country increases rapidly, it must accelerate the income increasing of its citizens, which
may be the impetus of saving increasing.
(3) Personal saving of the past year. According to different motives, the personal saving amount of past year
must have effect on the saving situation of this year. If surplus money was deposited in the past year, of course the
people will reduce the saving amount this year.
According to above factors that maybe influence the personal saving rate and adopting the data of the GDP
(G), the disposable income (I) and personal saving rate (S), we can establish the logarithm model by Eviews3.0.
The result is:
In the United States:
lnS t = 13. 13 + 5.91lnI t − 7. 33lnG t + 0.51lnS t −1
(4.96) (1.67) (-2.07) (2.45) Model (1)
R = 0.929025
2
F=65.44687 D.W=2.118693
In China:
lnS t = − 0.83 − 2. 62lnI t + 2. 92lnG t − 0.11lnS t −1
(-1.12) (-6.17) (6.02) (-0.81) Model (2)
R = 0.895131
2
F=39.83321 D.W=2.732231
From Model (1) we can see that the Disposable Personal Income and personal saving amount of past year

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 A Positive Analysis on Personal Saving Rate between America and China

have significant effect on the personal saving rate, but the effect of GDP is not significant. R 2 = 0.929025
shows that the goodness of fit is preferable. D.W=2.118693 has passed the checkout.
From Model (2) we can see that only the GDP has a significant effect on the personal saving rate.
R 2 = 0.895131 shows that the goodness of fit is preferable. D.W=2.732231 also has passed through the
checkout.
It shows that the disposable personal income and personal saving amount of past year have positive influence
on American personal saving rate, but GDP has a negative influence. However, the Disposable Personal Income
and personal saving amount of past year has not a significant influence on China’s personal saving rate. It’s saving
rate only influenced by the GDP.

4. Some Concerns and Suggestions about the Personal Saving Problems between the U.S.
and China

As for U.S., the low personal saving rate may cause national savings to be insufficient to support the level of
investment, which is necessary to sustain a high level of long run economic growth without excessive dependence
on foreign capital. The reason why the U.S. has a very high economic growth rate is and it has been able to attract
more foreign savings to finance some of the investments. The U.S. and its citizens benefit from the foreign
investment, which boosts U.S. labor productivity and wages. If the foreign investment disappears, the economy of
the U.S. will undergo a great depression. So the very low saving rate restricts investment, which in turn retards
economic growth. Moreover, an unusually low personal saving rate may pose problems for the economy in the
short run. If it were to be quickly reversed, it may bring about the instability in the economy.
So it is very important to raise the personal saving rate in U.S.. First, the government should take
countermeasures to encourage the citizens to deposit. For example, they can improve the saving interest rate to
mobilize the saving initiative of citizens. Second, the government can increase the saving amount through
increasing the Disposable Personal Income. This is an effective method to improve the saving amount. Third, they
can reduce the personal income tax in order to improve the personal saving rate. The government’ s bad tax
treatment of saving is one of the important reasons for the drop of the personal saving rate. Forth, formulating
countermeasures to restrict the citizens to borrow money from bank and increase the difficulties of loaning. In
U.S., the citizens can borrow money easily through many channels. It is a major reason why Americans don’t like
depositing.
As for China, the high increasing rate of saving has a negative effect on the economy development. First, the
high saving intensifies the irrational pattern of high indirect financing proportion. It makes the specialized bank
face with the high risks. If there is great fluctuation in the economy, the bank will confront immense pressure.
Second, the high saving rate must accompany with the drop of consumption rate and the decreasing of average
consumption tendency. Facing with the high personal saving rate, we should consider how to enlarge the interior
demand in order to improve the economy development.
Accordingly, we should take measures as follows: First, improve the development of direct investment
channels and coordinate the relationship between monetary market and capital market, so that residents can invert
the saving to investment. Second, perfect the social insurance system as soon as possible, encourage the residents
to consume when they get the income, especially to stimulate the demand of low-income class. This measure not
only can increase the saving rate, but also can boost the growth of economy. Third, increase the income of middle

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 A Positive Analysis on Personal Saving Rate between America and China

and low-income classes and reduce the instability of income. Forth, according to the shortage of residents’
consumption, the government should establish and standardize the credit system so that they can improve the
development of credit loan. Five, adjustment industry structure and supply structure, transform the long-term
deposit of high class to effective purchasing power.

References:
1. National Bureau of Statistics of China. China Statistical Year of 2004, China Statistics Press
2. http://www.bea.doc.gov/bea/dn/nipaweb/TableViewFixed.asp # Mid
3. Zinai Li. Econometrics, Higher Education Press
4. Milt Marquis. What’ s behind the Low U.S. Personal Saving Rate?, FRBSF Economic Letter, 2002 (9)
5. Stephen J. Entin. Fixing the Saving Problem---How the Tax System Depresses Saving and What to Do about It. Epicenter for
tax analysis, 2001(5)
6. Zhijun Zhao. The Fluctuation and Factor Analysis of Saving Rate in China, The Journal of Quantitative & Technical
Economics, 1998(8)
7. Leyi Chen. The Comparative Analysis of Personal Saving Rate between China and America, Commercial Economy Research,
2000(1)

(Edited by Beryl, Cemilin and Susan)

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