This paper seeks to present the underlying reasons why the urban Chinese households save so much. It will analyze the submissions of experts in the Chinese environment as well as those in the global markets. …
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Life Cycle Hypothesis Theory, and Overlapping Family Models, as well as a Literature Review on basic economics will be submitted to help develop an understanding of the behavioral patterns of this section of the Chinese population. The paper will conclude in a futuristic manner, contemplating whether the phenomenon will continue beyond 2015, when it is projected that the present working population group would have aged, and seeking to retire. The reference sources were chosen from a wide field, so that the best views of the technical minds available could be extracted and used to arrive at the conclusions made. It also enable comparisons to be made to see if there consistency in applications. Where this is observed it is highlighted to serve as concept reinforcements. Thanks must be given to my Professors as well as others who have provided timely support to make this project a reality. A. Introduction It would seem superficially that the Chinese government had designed a program to generate an extremely high propensity to save among its population, as well as in the national economy, during the last 30 years of the history of the country, but this may be far from being true. Analysts and Economists worldwide have become engaged in finding the answers as to why the Chinese Urban Household is saving so much? China’s unprecedented economic growth between 1978 and 2007 has not been matched by the levels of economic reforms which would have stabilized its financial and insurance markets, according to Wei, Yi (2011). During this growth period, the country’s foreign reserve increased dramatically from $2 billion to $2.4Trillion- a1000 fold increase, and propelled the nation into the position as being one of the world’s largest foreign reserves holder (Wen, Yi, 2011). Chamon and Prasad (2008), reports that between 1995 and 2005 the average urban household savings increase by 7% to about one quarter of disposable income, despite the rapid economic growth, and low government capped interest rates offered by banks (Chamon, M. Prasad, E. 2008). Experts opinion as to why the Urban Chinese household has been saving so much include biological motivations, men engaging in marriage marketing, Confucian philosophical beliefs, social imbalance, government policies, economic uncertainties, sex ratio imbalance, urban household behavioral issues, market and economic variations. Models have been designed and developed to explain the behavior of urban Chinese households, but do they successfully account for all the variables and how they affect each other in different provinces, under different birth orders, the number of children, and the educational and financial status of parents, remains to be seen. The roles of the firms and the government regarding the wages paid to workers, as well as the removal of the benefits of the social net may also be the real reason why the savings patterns had developed under the puzzling eyes of the global experts. It is also worth contemplating whether the reliability of a model should
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