The worse banks treat the Chinese, the more the Chinese save

Updated: 2011-09-26 17:13

(chinadaily.com.cn)

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The worse that Chinese banks treat their customers, the more that Chinese customers save, according to an International Monetary Fund study, says an article on the website of The Wall Street Journal on Sept 24, 2011.

Some economists argue that the Chinese save "to make up for a lousy pension and health-care system", while others say the Chinese want to buy houses. But IMF economist Malhar Nabar holds a different view. The Chinese, he says, will try to reach the target amount of savings in their mind "to pay for homes, appliances, health care and what have you".

So, explains Nabar, when banks pay less interest, they'll save more. But when they pay higher interest, they'll save less because it's then easier for them to hit their targets.

Since 1996, the rates at Chinese banks have gotten progressively worse — much further below the rate of inflation, says Nabar. But the Chinese have saved more and more. Thus, the worse the banks treat their customers, the more their customers save, he concludes.

"A sustained increase in the interest rates on bank deposits, and wider access to alternative investment opportunities would make it easier for households to meet their target saving accumulation," Nabar writes. In other words, they would save less when the banks treated them better.