0.20 General introduction to savings mobilization  (Page 4/9)

The Chinese financial markets for household borrowing are still largely undeveloped. So, these purchases require prior savings.

8. Rural Workers and Farmers
Legal restrictions on migrant Rural Workers make urban employment precarious for many. This heightens economic insecurity. Also rural farmers receive very limited public health and education services from government, hence the need to save to deal with uncertain, highly variable income. It is not just low income that is making savings difficult, it is highly variable income.

9. Confucian Influence? (on Households)
Confucian Savers in not only China, Hong Kong, Singapore tend strongly to save more than other groups (savings targets for families are typically one-fourth to one-third of income).

10. State-owned Enterprises (SOE ^s )
China’s industrial structure is still dominated by government owned firms (– State Enterprises or State corporations.) It is not at all uncommon for Chinese SOEs to have very high retained earnings (Corporate Savings). In fact, about 25% of total savings in China comes from retained earnings of Corporations, especially SOE ^s . Why?

1. Retained earnings are naturally higher in China because typically Chinese SOE ^s do not pay dividends, being State-owned, and until recently paid few taxes.
2. Western firms, in the U.S. and Europe face greater pressure to pay dividends, because of pressure for returns from private sector stockholders.

11. Marriage Prospects . Chinese urban families expect that male suitors will own a house or apartment. These are very expensive in urban areas. Whole families save to finance apartments for male suitors. Especially serious, given ever-growing shortage of brides because of one-child per family, strong son preference, and still common abortion of female fetuses.

Methods for savings mobilization

A major emphasis in fiscal policy in emerging nations over last 50 years has been attempts to use the government budget to mobilize government savings for finance of investments, both public and private investments. This of course requires governments to have budgets wherein taxes exceed current consumption expenditure of government. But government saving can be only part of the savings mobilization story. It is important to put government savings in perspective with other savings sources, domestic and foreign, public and private.

To a certain extent , the different sources of savings are substitutes – Policy may choose to emphasize domestic rather than foreign saving, private rather than public savings, etc. A decision to rely more heavily on one source of saving is usually a decision to rely less heavily on another.

For example, a decision to emphasize public (government) savings is usually a decision to deemphasize the role of foreign savings stress on domestic private savings as a source of investment finance is a decision to stress monetary policy over fiscal policy , as you will see.

To understand resource mobilization issues, first need to develop a simple, workable taxonomy of savings. (Please see Table 20-1 ).

Some identities

Savings mobilization: general consideration

A. Taxonomy of Savings