China's high savings: Drivers, prospects, and policy implications

China's national savings rate—one of the highest in the world—is at the heart of its internal/external imbalances. High savings finance elevated investment when held domestically, or led to large global imbalances when they flowed abroad. We find that high savings emanate mostly from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occurred during the transition from centrally planned to market economy. Housing reform and rising income inequality also contributed to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.