A net debtor in 1999, China has since become a major net creditor and is likely to remain so until 2025, according to the study.
The country’s “net foreign asset position” (NFA) — the difference between its overseas assets and liabilities — came to 30 percent of its GDP in 2007 and amounted to more than US$1 trillion.
In absolute terms, China’s NFA status was second only to that of Japan.
The authors of the study describe the turnaround in China’s external financial situation as “puzzling,” given its relatively low per capita income level (US$2,500) and its sizzling growth of recent years.
“A faster growing economy tends to attract more capital inflows,” the report noted, adding that “by conventional wisdom China should ... be a significant importer of foreign savings.”
ZEALOUS SAVERS
But that is not what has happened, the report contends, largely because the Chinese are zealous savers rather than consumers of foreign goods.
And those savings are increasingly being invested abroad, notably in the US, where Chinese holdings in US Treasury bonds now amount to more than US$800 billion.
“Given China’s growing role in the global financial system, the stakes are high, not only for China but for the rest of the world,” the authors contend.
In 1985, according to the study, for every 100 people in work, just over 45 children aged under 15 were dependent on them.
By 2005, 100 workers were supporting slightly fewer than 15 youngsters.
A reduced obligation to meet youth-related needs, the report said, should boost overall savings and drive net capital outflow.
“This is because a lower youth dependency could lead to reduced investment in housing, schools and hospitals,” the report says.
China’s overall dependency ratio, expressed as all children under 15 plus pensioners over 65 divided by all workers in between, is also falling.
The labor force in China has, in effect, been growing faster than the population that depends on it, further strengthening savings.
The study found that China’s overall dependency fell from 55 percent in 1985 to 38 percent in 2007.
A declining dependency ratio tends to lift household savings rates while increasing the labor supply, thereby acting as a constraint on wage rises.
Government savings are also enhanced as less money is spent on health care and pensions.
DEBT
The report also pointed to a reduction of Chinese government debt, which hit a peak of 30 percent of output in 2002. It noted that, conversely, a rise in official debt would tend to reduce domestic savings and increase foreign borrowing.
While Beijing is on course to remain a net creditor until 2025, youth dependency is unlikely to fall further and so “may thus cease to be a main driver” of China’s external financial position.
But the old-age dependency ratio is also forecast to double to 20 percent in the next 15 years, cutting spare funds for investment abroad.
China’s foreign asset position “is expected to adjust gradually, facilitated by continued strong economic growth and a more flexible renminbi.”
And “this should assist an orderly global rebalancing without creating excess stress on the rest of the world during the transition.”
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