A quarterly survey by PBoC cited by Shanghai daily shows that after two rate hikes more people plan to save, with their preference for savings accounts and less preference for stocks. It remains to be seen wheter it is just a short-term jump or a beginning of a trend. PBoC has raised rates twice to cool down overheating economy, and it tries to slow down over-stretched investment spending, including investment in residential property. However, at the same time most economists (and IMF) agree, that China should behave as a responsible stakeholder of global imbalances and rebalance its growth, from export-led to more broadly based, which includes increasing household consumption and reducing household saving. The survey results offer little heart-warming, consumers plan to save more, and there is little impact of rate hikes on residential property demand.

If you look at the literature on saving motives, the biggest motive is uncertainty. It could be uncertainty about old age heathcare spending needs or hedging against possible job loss. As shown by Xiao and Fan in China most important saving motives include saving for daily expenses, emergencies, children, and investment, whereas Americans are more likely to report saving for major purchases and retirement. Differences in cultures and in economic development stages were investigated as causes for such differences in saving motives. I talked to PBoC offcial on the sidelines of a recent conference about the social security reform Chinese authorities are pushing ahead. I do not know much about this reform, but I know that moving from nothing (or bankrupt pay-as-you-go in former CEE countries) to fully funded system, should raise household saving not reduce it. It was at leat one of major motives of reforms in central Europe, to reduce replacement rates, thus reduce the fiscal burden and make people save for themselves. Now consider what is likely to happen in China. On the one hand urban workers (headcount of which grows by ca. 20m a year) may enjoy wages increases and possibly spend more, but at the same time rapid aging of Chinese citizens will make them more aware about their retirement needs, which do not show up as important motive yet. Net impact of these trends may go either way, it just appears to me that structural factors making Chinese save big time are more difficult to change than it appears. And on top of it you may get rising uncertainty about possible hard-landing in China, if anything this may push people to save more rather than less to prepare for harder times.

The Independent also runs a story on China, suggesting that it may become a source of global disruption in the future, as its world econmy weight increased in recent years. Predicting unpredictable shocks is a loser game, but it just confirms what I have written above, growing uncertainty will make it harder to reduce Chinese savings.