Economics: Savings Rates Between the US and China
One of the main problems in the global economy is the difference in savings rates between the US and China. Savings rates in China are exceptionally high. The consumer savings rate is around 30%, the highest since the government began experimenting with market reforms. In the US, savings are at -0.4%, the lowest since the Great Depression. China, with a GDP one-sixth of the US, saved $1.1 trillion, compared with savings of $1.6 trillion in the US. Consumption in the US is 71% of the GDP, compared with just under 50% for China.These savings rates cause many problems. Because the Chinese consumers save so much, their economy is dependent on exports. Exports and fixed investments are 75% of the Chinese GDP, and growing at 25% per year. This over reliance on exports can lead to the erection of protectionist trade barriers agai
In China, this leads to an excess money supply. This in turn leads to asset bubbles such as the bubble in property values in the major Chinese coastal cities. They have also undertaken pilot projects for the development of a system of social security. The author takes the view that the savings trends in these two countries are unsustainable. In the US, the lack of savings has created a large current account deficit, especially with export-dependent economies like China. The increased consumption is being paid for through the extraction of equity from homes. That bubble allows US homeowners to extract equity from their homes, fueling even more consumption. There is, however, no political will for a national sales tax. As a consequence, only China is taking the necessary steps to rectify this pressing economic problem. One will be the establishment of a social safety net - the Chinese save so much because there is no welfare or unemployment insurance to help them in the event of job loss. The result is that Chinese savers are subsidizing US overconsumption. In order to maintain the currency peg of the yuan to the dollar, China cycles its savings through dollar-denominated assets.
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