An Analysis Of China’s Urban Residents’ Precautionary Savings

Since the reformation, especially since the eighties, China’s householdsavings deposits remained a high growth rate. In recent years, our governmenthas taken several measures such as lowering the RMB deposit interest rates,collecting interest tax, encouraging individuals’ consumer credit, raising theincome of residents in low-level and so on. However, these measures didn’tachieve the desired results and China’s household savings has been rising.During2008, the total savings deposit of Chinese residents had made up to21.78854trillion Yuan which had exceeded20trillion Yuan. This high savingslowered the consumptive level, also it could not being transformed intoinvestment effectively to drive the development of the national economy. In viewof this, many Chinese scholars, considering the residents’ increased feeling ofuncertainty brought about by reformatory measures, analyzed and discussedthe reasons from the angle of the precautionary savings, which were based onthe western theories of precautionary savings.This paper is based on the western theories of precautionary savings.Firstly, qualitatively analyzes the reasons and the effects of our urban residents’precautionary savings on macroeconomy. In the interpretation of the former,combined with China’s specific national conditions of economies in transition,extends the western theories of precautionary savings and adds the increase ofthe expected expenditure of the urban residents based on the uncertainty of thefuture income to explain our urban residents’ savings behavior. While In theanalysis of the later, we find the relationship is complex, the moderateprecautionary savings can cause an positive effect on the macroeconomy, onceexceeded the reasonable limit, it will produce a negative effect; Next, this paperinspects the behavior of precautionary saving of our urban residents empiricallyfrom the quantitatively point of view, utilizes the revised Buffer Stock Model,picks up the urban residents’ savings, income, consumption, real deposit rates,consumer price index data between1992and2008of China and uses RidgeRegression to eliminate the model’s multicollinearity, and ultimately receives thisarticle’s econometric model. From the empirical analysis, we find that China’s urban residents’ precautionary saving motive exists, and the income uncertaintymakes the maximum contribution to China’s urban residents’ savings, theamount of expected future expenditure growth in education and medical carealso plays a significant positive effect, while real deposit rates only plays a weakpositive effect due to the fact that China’s interest rate mechanism is lack offlexibility; Finally, according to the above the qualitative and quantitative analysis,it puts forward policy and suggestions to reduce residents’ precautionarysavings and stimulate consumption.