By Patrick Chovanec
Hereâ??s a thought for Valentineâ??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 Chinaâ??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 Weiâ??s view, it all boils down to sex â?? 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 Chinaâ??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 itâ??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.
Chinaâ??s one-child policy was instituted in 1979, so that means thereâ??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 arenâ??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 donâ??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 â??bride priceâ? that can go as high as US$5,000, a payment that represents several yearsâ?? income for a farming family. The lucrative practice has given rise to organized scams involving â??runaway bridesâ? who take the money and disappear. For a rather eye-opening read on this topic, check out this recent Wall Street Journal article).
Weiâ??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 Weiâ??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 â?? a boy â?? this past October, and he was quick to congratulate me on this, for most Chinese, highly enviable outcome. I remarked, though, that my wifeâ??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 (Chinaâ??s first financial institution set up to raise foreign investment) because she will bring in money from outside. Itâ??s a very Chinese analogy â?? I didnâ??t quite get it at first â?? but it captures an outlook that would seem to back up Weiâ??s theory.
Demographics certainly have a big impact on saving and spending patterns, but the usual focus is on age, not sex. I donâ??t know whether Weiâ??s theory is correct â?? I still think saving to pay for out-of-pocket health care is a key factor â?? 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, China has certainly come a long way from 1973, when Mao allegedly made Kissinger a bizarre offer to send 10 million â??excessâ? Chinese women to the United States. Donâ??t take my word for it, check out the BBC and AFP).
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Patrick Chovanec is a professor at Tsinghua University's School of Economics and Management in Beijing, China. He blogs at http://chovanec.wordpress.com/
