Summary
An average of about 18% to 19% of consumer incomes in China are placed into savings accounts, making Chinese savings rates among the highest in the world;
The significance of this is that there is a considerable amount of average salaries in China that is not being spent at retail outlets;
This also means that purchase of education and healthcare services has a discretionary element.Analysis
An average of about 18% to 19% of consumer incomes in China are placed into savings accounts, making Chinese savings rates among the highest in the world. What is interesting, is that rates of savings do not seem to decrease the wealthier Chinese become. Even in the richer cities, savings rates remain high. Considering that savings tend to be used for deposits on buying homes, education and healthcare fees, it seems safe to assume that this merely reflects the higher prices of these items in the main cities, and also perhaps the higher aspirations for better housing, education and healthcare service levels.
The significance of this is that there is a considerable amount of average salaries in China that is not being spent at retail outlets. However, were taxation of income to be higher in China, in order to provide more central and provincial government education and healthcare services (for example), then what is used in savings for such services would be taken in tax. This indicates that the high rates of savings among Chinese wage-earners are in fact a form of virtual self-taxation, providing funds for services not provided for by government.
This situation also means that purchase of education and healthcare services has a discretionary element. Even state-sector schools and hospitals charge fee rates according to the expertise and level of service quality that they have a reputation for providing, and people can choose which service they use, according to what they can afford. Thus, hospitals and schools can market themselves based on their service quality, as in the private sector elsewhere, becoming virtual discretionary retail services.
The question for the Chinese government, now committed to raising spending on public healthcare, is how best to raise the revenue needed to pay for this, and how this will effect the tax burden, and spending habits, of urban consumers.
