1978 to over 30 percent in the mid-1990s (Modigliani and Cao (2004)). Thereafter, it declined gently to around 25 percent in 2000, at which it broadly remained since. As a share of GDP, household saving is estimated to have been around 16 percent in recent years (Table 3). This is significantly more than in OECD countries, but less than in India, the other large developing country currently undergoing a rapid integration in the world economy. India has much lower overall saving and investment and a quite different sectoral composition of saving (Table 4), although the delineation between household saving and enterprise saving in India may be more fluid than in China (see below). Household survey data suggest that household saving rates in urban and rural areas were broadly similar: 26 percent in rural areas and 24 percent in urban areas in 2004. Thus, with urban per capita incomes about 3.3 times higher than those in rural areas, total urban saving is over twice as high as rural saving, despite the fact that urbanization is a bit over 40 percent.<sup>9</sup> The balance between saving and investment is in principle available as net financial investment.<sup>10</sup> This balance came down from 14-16 percent of GDP in the mid1990s to around 10 percent of GDP in recent years. The bulk (over 90 percent) of households’ net financial investment is in bank saving deposits.

Enterprise saving from retained earnings constitutes a large and increasing source of saving in China (Tables 3 and 4). In recent years, as enterprise saving increased to around 20 percent of GDP, it has overtaken household saving as the largest source of financing. The saving-investment deficit of enterprises is estimated to be around 11-13 percent of GDP in recent years. Of the deficit in 2002, 4.5 percent of GDP was financed by capital transfers from the government. The remaining 6-8 percent of GDP is financed by outside financing, mainly bank loans and foreign investment.

Government saving is remarkably high compared to other countries, and is much higher than suggested by the headline fiscal data. It is estimated to have been almost 6 percent of GDP in recent years. As a result, the government runs a significant saving-investment surplus, which forms an additional financing source. Indeed, in addition to its own investment, the government finances investment via capital transfers to state-owned enterprises in the power, electricity, water, transport, and other infrastructure sectors. The transfers have been about 4.5 percent of GDP in recent years. The investment by these enterprises established by the government financed by capital transfers are adding to overall public investment.

# **_Investment_**

Investment by the enterprise sector distinguishes China from other countries, and shows most of the variation over time. Enterprise investment rose from about 26 percent in 2000 to 32 percent in 2005. This means that in recent years, Chinese enterprises invested 14 percentage point of GDP more than those in the Republic of Korea and 23 percentage

> 9 As rural people invest a larger share of their income, partly in their household enterprise, per capita financial saving is much lower in rural areas. The _stock_ of per capita savings deposits was 6.6 times higher in urban areas.

> 10 Typically a statistical discrepancy appears when the flow information is combined with the “below the line” information on changes in financial assets.

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