China's accumulated capital as the driving force of the economic growth
Capital allows factories to be built and equipment to be purchased. Probably about three quarters of all the growth since 1978 has come from accumulated capital. China's growth is in large part due to it.
- Increasing income of families
- High (personal, corporate) savings rates : Successful firms have to save retained earnings since they cannot rely on bank loans or debt markets. People have to save for health, education and housing since these costs are increasingly borne by the individual rather than the state.
- China's savings rate will decline. China's rural households save much more than their urban peers, partly because public welfare provision in the countryside has always been extremely limited. Because of this, the household savings rate will undergo a secular decline as the country urbanises. They appear to have already started, with household saving falling from 21% of GDP in 1995-96 to around 18% today.
- as bank and capital market reforms make credit more widely available, healthy companies will be more prepared to take on greater leverage, and will save less too.
China has saved an average of 37% of GDP over the reform period.
China's first seventeen years of economic reform, 1978 through 1995