14th Five-Year Plan highlights savings, growth

China's savings rate, although high, has been declining of late, after reaching a peak of 52.3 percent in 2008.

The national savings rate remained at 46.2 percent in 2017, the latest year for which full data are available, more than double the world average of around 20 percent and higher than that in other high-saving East Asian peers.

The decline appears to reflect that the economic structure is upgrading to a more balanced state, which indicates a positive. Falling government savings are the main factor behind the decline, but as private sector savings account for a larger proportion of national savings, any further declines in the national savings rate in the future will be mainly triggered by decreases in the private savings rate, especially in the household savings rate.

Household savings accounted for 47.3 percent of national savings in 2017, and the trend of household savings during the 14th Five-Year Plan period (2021-25) will have a decisive impact on the overall changes in national savings.

As wages have experienced rapid growth in China over the past decade and are growing faster than labor productivity, it is expected that the growth rate of household income will slow down during 2021-25 and lead to a decline in the household savings rate. The uncertainty caused by the ongoing COVID-19 pandemic will have a smoothing effect on consumption and reduce the savings rate during the early stage of the 14th Five-Year Plan period.

The savings rate of enterprises is likely to see a small upward momentum during the period. As industry concentration increases, the savings behavior of large enterprises will bring up the overall level of savings. Such trend will continue during the 2021-25 period. In addition, global uncertainties brought by woes like Sino-US trade frictions and the COVID-19 pandemic will push firms to save more to mitigate possible operational risks.

The public savings rate will continue to drop during the same period. To better cope with the aging population issues, the social security spending on old-age care, healthcare and related areas will continue to rise. Together with moves like tax cuts or expansionary fiscal policies, these will further drive down the public sector savings rate.

In addition, the COVID-19 impact on the economy has not been completely digested. How long this pandemic will last remains unknown. The post-epidemic economic recovery, which is always accompanied by massive public spending, will also reduce public savings. But as the share of public savings in national savings falls, its marginal contribution to changes in national savings will become smaller and smaller.

Apart from the factors discussed above, demographic changes may determine future declines in savings rates.

China's private sector savings rate accounted for 92.7 percent of national savings in 2017, with 45.4 percent of corporate savings and 47.3 percent of household savings. The increase of population dependency ratio and the change in structural factors are the main determinants of the change in residents' savings.

In 2019, those aged 65 and over accounted for 12.6 percent of the total population in China, while those aged 60 and over accounted for 18.1 percent. Moreover, the aging population issue, in the future, will further boost the dependency ratio.

Since 2013, the working-age population aged 16 to 59 has begun to decline in China, down 23.14 million over a six-year period (2013-18).

During 2021-25, the number of the working-age group will further decrease by 25 to 30 million, much faster than the pace seen during the 13th Five-Year Plan period.