Household finance in China

This paper studies household finance in China, focusing on the high savings rate, the low participation rate in the stock market, and the low stock share in household portfolios. These salient features are studied in a lifecycle model in which households receive both income and medical expense shocks and decide on stock market participation and portfolio adjustment. The structural estimation explicitly takes into account important regime changes in China, such as the re-opening of the stock market, the privatization of the housing market and the labor market reforms that changed household income processes. The paper also compares household finance patterns in China to those in the US, and shows that between-country differences in financial choices are driven by both institutional factors (e.g. higher costs associated with stock market participation and a lower consumption floor in China) and preferences (e.g. higher discount factors of Chinese households).