China’s high savings rate is expected to fall substantially in coming years as its workforce shrinks, the population ages and social security spending increases, a BIS report shows.
In research published by the Bank for International Settlements on the “myth and reality” of China’s savings rate, Ma Guonan (馬國南) and Wang Yi found that the Asian giant needs its population to spend more in order to sustain rapid economic growth in coming years.
The researchers, who were writing in their personal capacity, also reject claims that Chinese state firms have been benefiting from high savings thanks to exchange rate distortions and subsidies designed to drive economic growth.
They point out that “less advantaged” and more efficient firms have been the ones posting the greatest gains in earnings in recent years, rather than state-owned companies.
China’s gross national savings soared from 39.2 percent of output in 1990 to 53.2 percent in 2008, far higher than the US, which saved just 12.2 percent in 2008.
Even compared to other Asian giants — Japan with 27 percent in 2007 and India with 33.6 percent in 2008 — China’s share of savings as a percentage of GDP is significantly larger.
Nonetheless, the population and social trends that have underpinned China’s growth and savings rates are likely tail off significantly over the next decade, the two researchers said.
The frugal Chinese have come under fire from critics who claim that Beijing fueled a credit bubble in the West by investing these savings abroad, especially in the US.
Chinese holdings in US Treasury bonds reached US$900.2 billion in April, making it the biggest holder of such investments.
In the wake of the global slump, world leaders and economists have been asking China to spend more, rather than pin its economic growth on exports to the West, in order to help address world trade imbalances.
Ma, a BIS economist and Wang, who is from the Chinese central bank, note however that the current savings trend by Chinese households will not last.
The rapidly growing working population in recent years has boosted savings in recent years, Ma and Wang said.
In addition, large-scale corporate restructuring between 1995 and 2005 increased job uncertainty, forcing workers to set aside more money in case they were fired.
The lack of a social safety net also pushed workers to make “precautionary savings.”
Beyond households, government savings have also been increasing in tandem, as more is being set aside to meet pension needs, which are expected to rise significantly as the population ages.
However, these trends are expected to be reversed in coming years.
“It is reasonable to assume that the large-scale labor retrenchment observed during 1995 to 2008 is by and large been behind us,” the researchers said.
China is also expected to enter into a phase of “accelerated population ageing within a decade.”
This means that the workforce will decline, leading to a fall in overall income and therefore savings.
At the same time, infrastructure spending is expected to continue, in order to provide for the ageing population and the urbanization of the country.
“Taken together, a key implication from these medium-term forces is that China’s saving rate is likely to plateau before long and may ease off noticeably from the current 53 percent or even higher levels over the next 10 years,” the researchers said.
“The marked U-shaped experience of China’s saving rate over the past 25 years also suggests that the prospective Chinese saving rate can fall meaningfully in the years ahead,” they added.
NATIONAL SECURITY THREAT: An official said that Guan Guan’s comments had gone beyond the threshold of free speech, as she advocated for the destruction of the ROC China-born media influencer Guan Guan’s (關關) residency permit has been revoked for repeatedly posting pro-China content that threatens national security, the National Immigration Agency said yesterday. Guan Guan has said many controversial things in her videos posted to Douyin (抖音), including “the red flag will soon be painted all over Taiwan” and “Taiwan is an inseparable part of China,” while expressing hope for expedited “reunification.” The agency received multiple reports alleging that Guan Guan had advocated for armed reunification last year. After investigating, the agency last month issued a notice requiring her to appear and account for her actions. Guan Guan appeared as required,
Japan and the Philippines yesterday signed a defense pact that would allow the tax-free provision of ammunition, fuel, food and other necessities when their forces stage joint training to boost deterrence against China’s growing aggression in the region and to bolster their preparation for natural disasters. Japan has faced increasing political, trade and security tensions with China, which was angered by Japanese Prime Minister Sanae Takaichi’s remark that a Chinese attack on Taiwan would be a survival-threatening situation for Japan, triggering a military response. Japan and the Philippines have also had separate territorial conflicts with Beijing in the East and South China
A strong cold air mass is expected to arrive tonight, bringing a change in weather and a drop in temperature, the Central Weather Administration (CWA) said. The coldest time would be early on Thursday morning, with temperatures in some areas dipping as low as 8°C, it said. Daytime highs yesterday were 22°C to 24°C in northern and eastern Taiwan, and about 25°C to 28°C in the central and southern regions, it said. However, nighttime lows would dip to about 15°C to 16°C in central and northern Taiwan as well as the northeast, and 17°C to 19°C elsewhere, it said. Tropical Storm Nokaen, currently
PAPERS, PLEASE: The gang exploited the high value of the passports, selling them at inflated prices to Chinese buyers, who would treat them as ‘invisibility cloaks’ The Yilan District Court has handed four members of a syndicate prison terms ranging from one year and two months to two years and two months for their involvement in a scheme to purchase Taiwanese passports and resell them abroad at a massive markup. A Chinese human smuggling syndicate purchased Taiwanese passports through local criminal networks, exploiting the passports’ visa-free travel privileges to turn a profit of more than 20 times the original price, the court said. Such criminal organizations enable people to impersonate Taiwanese when entering and exiting Taiwan and other countries, undermining social order and the credibility of the nation’s
RSS