Twenty-seven-year-old lawyer Kevin Han is frugal. Breakfast is 5 yuan (82¢) for a cup of soybean milk and a hardboiled egg or a steamed bun. He has a 20-yuan lunch of white rice, with small portions of meat and vegetables, in the cafeteria at his workplace in Beijing. He spends about the same for dinner. Han gets deals buying clothes online, lives in a cheap rental apartment, and takes the subway to work (4 yuan round-trip). Scrimping is a must if he’s to buy his own place. He says he saves about half his monthly take-home pay of 13,000 yuan. “I want to get married and have a child, which will cost lots of money. My parents are not rich. So I have to save everything by myself.”
China’s leaders want these super savers to open their wallets and boost a slowing economy. Chinese on average put away 30.6 percent of their disposable income, amounting to 6.9 trillion yuan in total household savings in China in 2012, estimates Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong. That’s up from 23 percent 10 years ago. With increasing overcapacity in steel and cement, rising corporate debt, and a growing problem with unregulated shadow finance, Beijing must wean China off investment-led growth in favor of more household consumption—only 35.7 percent of gross domestic product, way behind the 50 percent to 60 percent in many other countries.
Middle-class Chinese like Han pinch pennies to pay for ever-more costly city apartments and save for their children’s education costs. The working class also hoards yuan. Twenty-six-year-old Sichuan native Wei Yinping, a worker in a Shenzhen watchband factory, worries about paying for medical care if she or her parents become seriously ill. She saves almost half her monthly salary of 2,500 yuan. Without a hukou, or household registration card, she can’t avail herself of Shenzhen’s public health-care network. “If I had a local hukou, I would have many social security benefits” and not save so much, she says. Wei plans eventually to move back home and take care of her mother.
One reason the Chinese are champion savers is that earning a decent return is so hard. China’s central bank has kept rates low: A one-year deposit rate offers 3 percent, while loans to support investment by free-spending local governments and state companies go for 6 percent. With inflation, Chinese households earn close to nothing on bank deposits. “Interest rate policy has limited the ability of households to earn income from their savings, and reduced the pressure on poorly performing companies to improve,” warned Andrew Batson and Joyce Poon, analysts at Beijing-based economic consulting firm GK Dragonomics, in a May report.
The government is taking steps to reform the hukou system. It’s expanding health-care and pension plans so Chinese need not save to protect themselves from catastrophe. Regulators are giving banks more flexibility to set market-based interest rates and encouraging lending to the service sector, which is creating jobs. It will take all this and more to unleash Chinese spending power.