The world powers want China to shoulder more international responsibilities because of the country's long-term high savings rate. What accounts for the high savings ratio in China? Is it in accordance with the law of development? And is it fair to blame China for the financial crisis in the United States and some European countries? With these questions, People's Daily Online recently interviewed Zhang Jianhua, Director of the Research Bureau of the People's Bank of China. Edited excerpts follow:
People's Daily Online: Among the various "China responsibility" theories thrown out by some Western countries, "high-savings responsibility" has perhaps one of the greatest following in the wake of the global financial crisis. With regard to this theory, it is important to explain the causes of the high savings ratio in some countries, including China. What accounts for the high savings rate in China?
Zhang Jianhua: Oversaving is often seen in oil-producing countries, which is natural because of their special trade. But the high savings rate in East Asian countries, including China, is due to many reasons. Influenced by traditional concepts, people in these countries strongly advocate thrift and fight against extravagance. In addition, with such a closed family structure, breadwinners often shoulder a lot of social responsibilities such as supporting the old and raising the young in a family.
East Asian countries learned lessons from the 1997 Asian financial crisis by increasing both their foreign reserves and domestic capital pools, in an attempt to sharpen their defenses against financial meltdown.
In addition to similar reasons as other East Asian economies, China's high savings ratio is caused by some objective factors. First, the social security system is not perfect. Second, the irrational distribution of profits in enterprises has resulted in the majority of profits being deposited in banks. Third, national income has risen, thanks to the acceleration of industrialization and urbanization, which has also helped to increase the country's savings rate. These factors, amplified by a fast-growing economy, will gradually adjust with further market reform.
In accordance with the theory of the late American economist Walt Whitman Rostow, capital and manpower are key factors for developing countries to get rid of poverty before and during their economic takeoff. Domestic savings serve as one of the two factors. Viewed from this perspective, is China's high savings ratio reasonable?
In the present stage, China's high savings rate is reasonable to a certain degree and conforms to the law of economic development. Almost all developing countries experience a high savings rate period in the process of transitioning into developed countries.
Japan's economy experienced rapid development during the industrialization process in the 1960s and 1970s, with a savings ratio exceeding 30 percent. The Republic of Korea also finished industrialization and experienced the transition from developing to developed country in the 1980s, when its savings ratio stood at nearly 40 percent, a record high in its history.
China is experiencing a similar period of industrialization. The high savings rate has supported the Chinese economy, met the needs of capital demand in the process of industrialization and urbanization, accumulated capital stock, and avoided the fluctuation caused by heavy reliance on foreign funding.
China will not pursue a high savings rate over the long term, but will make use of its current ample savings to promote industrialization and urbanization and to accelerate steps both to readjust the economic structure and transform the economic growth mode. Some Chinese scholars have predicted that China's savings ratio will decline by 12 percentage points between 2015 and 2025 as society ages. China therefore has a limited time to enjoy its high savings rate.
The "high-savings responsibility" theory holds that emerging countries like China lent their savings at a low interest rate to low-saving countries like the United States. Easy access to money encouraged consumers in these countries to purchase highly risky property, which created economic bubbles and eventually led to the global financial crisis. Not only that, but the weak global economic recovery in the wake of the crisis is also due to high savings rates. Based on this logic, high-saving countries should not only shoulder responsibility for world economic losses, but also shoulder the responsibility of saving the world economy.
This is obviously ridiculous logic.
The global financial crisis has a certain connection with the low savings rate in the United States. But China's high savings rate should not be blamed, because the two "rates" are not connected--The U.S. savings rate began to decrease before the Chinese savings rate began to increase.
During the Great Depression in the 1930s, the individual savings rate in the United States dropped below zero, and even declined to negative 1.5 percent in 1933, a historic low. A new round of decline in the U.S. savings rate began in 1984. By 1999, the savings rate had decreased to about 2 percent, where it stayed for six years.
However, the savings rise in East Asian countries started after the Asian financial crisis in the late 1990s, with China's savings rate beginning to rise in 2002.