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Does Mating Competition Drive China’s High Savings Rate?

February 8, 2010

Here’s a thought for Valentine’s Day: 

Wei Shangjin, a professor at Columbia Business School, proposes an intriguing new theory in Forbes to account for why the Chinese save so much.  Conventional explanations of China’s high savings rate focus on high out-of-pocket expenses for health care and education, the absence of a social safety net, and an undervalued currency that makes exports cheap and imports expensive.  But in Wei’s view, it all boils down to sex — the gender ratio, that is, and the competition it causes in the marriage market.

In China today, he notes, there are 122 baby boys born for every 100 girls.  Given China’s one-child policy, most Chinese parents, especially in low-income rural areas, have a strong preference for having a boy to carry on the family line (in my own observation, residents of high-income cities like Beijing, in contrast, seem to actually prefer girls).  Even though it’s technically illegal under Chinese law to tell an expecting couple the sex of a fetus (for precisely this reason), many find out anyway and will abort a girl in order to try again for a boy.  The result is a lopsided demographic with a lot more boys than girls.

China’s one-child policy was instituted in 1979, so that means there’s been plenty of time for those baby boys and girls to grow up and start looking for mates.  And when they pair off, there aren’t enough girls to go around.  According to the numbers, one out of every five young men will be unable to find a partner.  Which means, if you don’t want to end up the lonely heart, you better have a plan to impress the ladies.  For families with boys, Wei believes, that means saving up to buy housing and other accoutrements of wealth that will help attract a mate (in fact, in some parts of China, bachelors and their parents have resorted to forking over a cash “bride price” that can go as high as US$5,000, a payment that represents several years’ income for a farming family.  The lucrative practice has given rise to organized scams involving “runaway brides” who take the money and disappear.  For a rather eye-opening read on this topic, check out this recent Wall Street Journal article).

Wei’s theory, that mating competition drives high savings rates in China, is an interesting notion, one he tries to back up with hard data.  He reports:

In our study we compared savings data across regions and in households with sons versus those with daughters. We found that not only did households with sons save more than households with daughters on average but also that households with sons tend to raise their savings rate if they happen to live in a region with a more skewed sex ratio. 

Even those not competing in the marriage market must compete to buy housing and make other significant purchases, pushing up the savings rate for all households.

The effect is significant.  The household savings rate in China rose from about 16% of disposable income in 1990 to over 30% today, which is much higher than most countries. (The comparable rate in the U.S. was about 3% before the crisis, and 6% in recent months.) About half of the increase in the savings rate of the last 25 years can be attributed to the rise in the sex ratio imbalance.

When I read Wei’s article, it immediately called to mind a joke one of my Chinese students told me.  My wife and I had just had our first child — a boy — this past October, and he was quick to congratulate me on this, for most Chinese, highly enviable outcome.  I remarked, though, that my wife’s parents would actually have preferred a girl.  He said that this was a common attitude in Beijing, unlike the rest of the country.  A boy, he said, is like China Construction Bank.  You must save and save in order to afford and buy a house.  A girl, on the other hand, is like CITIC (China’s first financial institution set up to raise foreign investment) because she will bring in money from outside.  It’s a very Chinese analogy — I didn’t quite get it at first — but it captures an outlook that would seem to back up Wei’s theory.

Demographics certainly have a big impact on saving and spending patterns, but the usual focus is on age, not sex.  I don’t know whether Wei’s theory is correct — I still think saving to pay for out-of-pocket health care is a key factor — but it certainly presents food for thought.  If it is true, even in part, it suggests that the Chinese preference to save rather than spend may go far deeper, and prove far less tractable, than many economists believe.

(In any event, the balance has certainly shifted since 1973, when Mao allegedly made Kissinger a bizarre offer to send 10 million “excess” Chinese women to the United States.  Don’t take my word for it, check out the BBC and AFP).

9 Comments leave one →
  1. February 8, 2010 10:39 pm

    What an interesting take on the Chinese economy. Once I really stopped to think about it, Wei’s logic seems very circular. Families with boys need to save more money so that they can spend more money (ie, on a house, or other tangible representations of wealth). By the same token, the American concept of “keeping up with the Joneses” should allow us to save our money rather than frittering it away…

    • prchovanec permalink*
      February 8, 2010 11:18 pm

      I think he means that they need to save up for major purchases. Perhaps the bride price I mentioned is a better example of the need to save for several years in order to marry. But in any case, I neither endorse nor reject his theory, I just find it worth thinking about.

  2. Terry permalink
    February 9, 2010 3:23 pm

    I read that article in Forbes and the WSJ article and had similar thoughts. In my opinion though, savings are a long term good for economies.

    Traditional attitudes towards marriage and sons are still prevalent especially in rural areas. Fundamentally in traditional agrarian China, sons are an investment in the future (social security, extra labor etc) while girls were considered “po shui” a wasteful investment. One of the terms for marriage of women in China is “jia chu qu” means leaving home and joining another family and parents of daughters want some form of return on the investment of feeding a raising a daughter, hence the cai li/dowry price.

    What has changed a lot, is the attitude of the parents in the WSJ piece. In the old days, a daughter became practically a slave to the husbands family until she produced a son, but now parents are worried about loosing the daughter in law due to much improved economic prospects and independence for women in modern China. City and even some rural parents are aware that daughters also can contribute to family income and in some ways due so more consistently without appeals to filial piety. I asked a friend yesterday if she was going to get “hong bao” on her return to Shanxi for CNY, and she said.. no! I will be giving my parents red packets of money.. definitely a role reversal from the past.

    Now in the cities, there is a growing trend towards “naked marriages”, which is essentially living together with the marriage certificate, but without the elusive apartment and major wedding expenditure as couples are compromising on economic security issues and focusing on relationships.

    I guess the one thing I think is important to take away from all this, is that one needs to have a broad inter-disciplinary understanding of society while pursuing field specific (in this case economic) studies that are by nature much more narrow in focus. My gut feel on Wei’s theory is that it is right on in terms of an overlooked factor in the mix of economic insecurity that leads to high savings.

  3. Guy de Jonquieres permalink
    February 9, 2010 10:53 pm

    This article only identifies a statistical correlation between one-male-child families and high savings rates. It provides no explanation of the causal relationship between the two, which way round it operates or why it exists. Are families that keep sons while giving girls up for adoption intrinsically more disposed to save? Or does the fact of having a son make them so? Until such questions are answered, the practical value of the findings seems to me rather limited.

    That said, I agree that the reasons for household savings patterns, and not just in China, are far more complex than is generally acknowledged. It is assumed by the World Bank and others that building stronger social security systems will lower household savings and promote consumption by reducing their “precautionary” element. But the empirical evidence for that assumption seems far from conclusive. Research by the OECD, in developing as well as developed economies, has found that savings rates are influenced by a wide range of factors, which vary greatly between countries. Furthermore, even when those factors are clearly identified, it is not obvious which of them is the most important in any particular case.

    Among the industrialised countries, it is noticeable that the high savers, such a France, Japan and Germany, all have experienced profound social and political upheavals and trauma within living memory, largely associated with war. In China, memories of the deprivations and suffering inflicted by warlordism, the great leap forward and the cultural revolution are very much alive. By contrast, the low savers, including the US, Britain, Australia and New Zealand have enjoyed centuries of peace and political stability.

    Could these different historical experiences determine household savings patterns? After all, if your parents’ world fell apart, you may wnt to build up a sizable nest egg against the risk that the same may happen to you. It is particularly striking that France and Germany have the world’s most elaborate and generous social welfare systems in the world, while until the lost decade many Japanese enjoyed cradle-to-grave job security and extensive corporate welfare benefits. By contrast, the US has a pretty basic social safety net.

    As academics like to say, further research into these issues is needed…

  4. greg permalink
    February 10, 2010 6:33 am

    The correct version of the joke that your student told you should be: raising a boy is like having a China Construction Bank (建设银行)whereas raising a girl is like having a China Merchant Bank (招商银行). The joke takes advantage of the meanings of the Chinese words 建设(construction or build) and 招商(attract investors). In other words, having a boy is like you have to spend money whereas having a girl is like fishing for investor.

  5. Karen permalink
    February 19, 2010 1:25 pm

    I’ve read elsewhere (Michael Pettis? Andy Xie? Victor Shih? I wish I could remember better) that the high Chinese savings rate is entirely or almost entirely an artifact of retained earnings by businesses, rather than being due to any particular propensity of individual Chinese to save their money.

    Do you know if that is true?

    If it is, then of course Wei Shangjin’s theory shouldn’t be taken too seriously…

    • Guy de Jonquieres permalink
      February 19, 2010 6:02 pm


      There is some disagreement among China economists about the sources of savings: as so often, the differences arise from the base data used and on how they are interpreted. Calla Wiemer insists that households are the big savers. That, however, seems to be a minority view. Others believe that the main contributors are businesses and central government. Probably the most exhaustive research on the issue has been done by Louis Kuijs at the World Bank’s office in Beijing. He argues that much of the savings increases in recent years has been generated by businesses out of retained earnings, which are then re-invested in diversification or additional capacity. This certainly seems consistent with China’s astonishing high levels of fixed asset investment, which exceeds 40 per cent of GDP and is estimated to have generated more than 90 per cent of last year’s growth.


  6. February 25, 2010 12:21 am

    Something else to consider: if this theory about high savings rates is true and (all else remains constant as well), then if China were to lift the one child policy as its population becomes more grey — would it be successful?

  7. Wisdom permalink
    March 19, 2010 5:38 pm

    Whether their femicidal culture drives up savings rate in a big or small way, the fact of the matter is – Chinese females ‘bride price’ will soar like crazy in the next 20-30 years.

    Women of the world should also benefit from this YOUNG male surplus.

    The men, young and old, who overcome kneejerk denial and get their act together in time, who save up, in pennies, housing, youthfulness, or good houseband skills, will stand a better chance.

    For too long women have been used and abused in this world, and told they are not worth much. Day of reckoning is here. And the rise and rise of female power will be unstoppable.

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