China Household Savings And Interest Rate Change

The household savings is the most important resource of capital to the development of economy in China. China should maintain the sustainable economic growth by transforming economic growth mode. Whether the government could properly deal with the relationship between the household savings and household consumptions is the key point to the transformation of economic growth mode. Interest policy is one of the monetary policies and is a exogenous variable to China's economy. So a study on the relationship between the interest change and household savings is helpful to discuss transmission mechanism of interest policy and deep the reorganization of interest regulatory.This study makes a review on the theory of the relationship between interest and savings in classic economics and modern economics. The conclusions are as follows:. Theoretically the direction of substitution effect between household savings and household consumptions is uncertain when the interest change. But in some certain circumstance, the substitute effect can have a certain direction. This study also introduce the flow of funds account and flow of funds analysis, it could make a support to practice research on China household savings and interest change.This study also reviews the Chinese scholars'practice research on the Chinese household savings and interest change. These efforts make a important support to this study's practice research.In practice research part, this study first builds the model based on the works of Juhuan He in Institute of Quantitative and Technical Economics, Chinese Academy of Social Sciences. Then this study makes adjustments and explanations on the data about saving rate, income growth rate and interest. After these efforts, this study uses Eviews to make a practice research on Chinese household savings and interest change. The conclusions are as following: from 1992 to 2004, the change of China household total savings rate and the change of nominal interest rate are positive related, but the relationship is weak; the change of China household real savings rate and nominal interest rate are negative related and the relationship is weak; not only the change of nominal interest rate but also the change of real interest rate can not explain the change of China household financial savings rate.This study points out that few amount of property the household held and the little property income the household received are the main causes which make the change of interest has little impact on the change of household savings. There are at least two reasons makes China household hold few amount of property: the economic reason and the systematic reason. After comparing China's the tables of flow of funds and the United States', lacking of asset appreciation revenue and little dividend income growth make the property income grows slowly.Aimed at the cause of few amount of property and slow growth of property revenue, this study provides the suggestions that increasing household income, perfecting the social safety system, protecting household property and creating sound environment for the growth of property income.Since 2005 there are some positive changes in China such as the accelerated household income growth, the development of stock market and so on. In the forthcoming years, we can believe that the change of interest rate can affect the change of household saving rate more heavily. The interest policy may play more and more important role in macro-regulatory.