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Macroeconomics Case Study

Case Title:

High Savings Growth: Where It Will Lead The Chinese Economy?

Publication Year : 2010

Authors: S Chaudhuri and S Ray

Industry: General Business


Case Code: MAC0025IRC

Teaching Note: Not Available

Structured Assignment: Not Available

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The overly fast growth of the household savings rate seemed to have a negative effect on the country's macro-economic structure, as it led to an imbalance between savings and consumption. This huge growth in savings had resulted from the growing tendency to accumulate large savings because of future economic insecurity, such as rising expenditure and unemployment. The One Child Policy implemented in 1979 also had positive effects on savings, as people had to spend less. This put an increased pressure on the banking sector due to the creation of a huge amount of idle funds. It remained to be seen whether the Chinese Government had the foresight and political will to introduce the much-needed shift from savings to consumption, which stood out as a considerable challenge to the communist propaganda of non-materialism.

Pedagogical Objectives:

  • To promotion of consumption.
  • To curtailment of forces that drive savings.
  • To proper income distribution system.
  • To removal of the non-tax burden for farmers
  • To nine years of compulsory education, free of charge
  • To low cost of housing
  • To Information of a healthy capital market

Keywords :  Savings, GDP, Saving consumption imbalance, Chinese tradition, Salary system, Social security system, One child policy, Rising medical expenditures, Overall economic growth, Improper reforms, Five-year plan, Secondary vocational education, Progressive tax, Volatility in capital market, Differential tax rates

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