China’s high national saving rate is the key hurdle for government to build a consumption-driven economy.
Encouraging people spending is quite essential to sustain a long-term and stable increase. Most of Chinese people save their money for precautionary spending. So building a social safety net by spending more on healthcare becomes government’s right direction to encourage consumption.
Their analysis uses figures on consumption and healthcare spending in different provinces in China over a period of several years, in order to divine whether and how differences in government spending line up with changes in consumption. Barnett and Brooks come up with some pretty large numbers:
The results suggest a statistically significant relationship between health spending and urban saving…each 1 yuan of government health spending results in a 2 yuan decrease in saving—or, equivalently, a 2 yuan increase in consumption. This is a strong impact, as it would imply that a 1% of GDP increase in government health spending would boost private consumption by 2% of GDP and yield a total demand effect of 3 percent of GDP for every 1% of GDP increase in health spending.

The bad news is that the effect of higher healthcare spending hasn’t been enough to turn things around: Household savings overall have still been rising, and consumption’s share in GDP falling, even as the government has been boosting the health budget.
Researches find it is mainly because the households also save for education, especially college education. Also the rising house price also weakens the spending intention.
Other reason is that household incomes have been growing slower than the overall economy. “Households are getting a declining share of the value added pie,” Barnett and Brooks write. With households getting a smaller share of GDP, more of the nation’s income has gone into the hands of corporations and government.