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chinese financial market
ECON 346
ECONOMICS OF TRANSITION AND
DEVELOPMENT: CHINA
Fall 2013
Professor Guofu Tan
Department of Economics
University of Southern California

Topic 11: Banks and Financial Markets
2

1.
2.

3.
4.
5.

Basics: Saving and Capital Formation
Basics: The Financial System and the Allocation of
Funds to Real Investment
The Financial System in China
Reform the Banking System
Development of Financial Markets

Econ 346: Economics of Transition and Development: China

Guofu Tan

Basics: Saving and Capital Formation
3



Why do people save?
 Life-cycle

saving: To meet long-term objectives, such as retirement, university attendance, or the purchase of a home  Precautionary

saving: For protection against unexpected setbacks, such as the loss of a job

 Bequest

saving: For the purpose of leaving inheritance

Econ 346: Economics of Transition and Development: China

Guofu Tan

Individual Saving
4

 Individual

inter-temporal consumption decision

 Personal

saving rate (personal savings divided by personal disposable income) varies across countries

 Marginal

Propensity to Consume (MPC) – the amount by which consumption rises when disposable income rises by $1

Econ 346: Economics of Transition and Development: China

Guofu Tan

China’s household savings
(in billion 1978 RMB)
5

Econ 346: Economics of Transition and Development: China

Guofu Tan

Modigliani-Cao savings rate and Mees-Ahmed savings rate (%)
6

Source: Modigliani and Cao (2004), China Compendium of Statistics 1949-2008, Statistical Yearbook 2010

Econ 346: Economics of Transition and Development: China

Guofu Tan

Bank Deposits, 2010 (as a ratio to GDP)
7

Source: Prasad and Ye(2012)

Econ 346: Economics of Transition and Development: China

Guofu Tan

Economy-wide Saving and Investment
8

 Gross

saving – the sum of household, corporate, government, and non-resident
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