Guest Post: The puzzle of China’s rising household saving rate
Yves here. I thought this post from VoxEU was worth featuring because it provides concrete support for one theory about how to reduce US/Chinese trade imbalances. As long as China has a high savings rate and low domestic consumption, it will have to also show a high level of exports, which in turn means other countries or countries wind up showing high levels of consumption and rising debt levels. And worryingly, China’s consumption as a percent of GDP has been falling, a very unusual pattern for a developing economy.
One common prescription is for China to improve its social safety nets. This analysis indicates that might have merit. Admittedly, there are practical obstacles to implementing it, one of the large ones being the level of corruption in provincial governments.
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