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Aggregate Savings and External Imbalances in China

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  • Dennis Tao Yang

Abstract

Over the last decade, the internal and external macroeconomic imbalances in China have risen to unprecedented levels. In 2008, China's national savings rate soared to over 53 percent of its GDP, whereas its current account surplus exceeded 9 percent of GDP. This paper presents a unified framework for understanding the structural causes of these imbalances. I argue that the imbalances are attributable to a set of policies and institutions embedded in the economy. I propose a unified framework for understanding the joint causes of the high savings rate and external imbalances in China. My explanations first focus on an array of factors that encouraged saving across the corporate, government, and household sectors, such as policies that affected sectoral income distribution, along with factors like incomplete social welfare reforms, and population control policies. I then turn to policies that limited investment in China, thus preventing the high savings from being used domestically. Finally, I will examine how trade policies, such as export tax rebates, special economic zones, and exchange rate policies, strongly promote exports. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distortions. In conclusion, I recommend some policy reforms for rebalancing the Chinese economy.

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 26 (2012)
Issue (Month): 4 (Fall)
Pages: 125-46

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Handle: RePEc:aea:jecper:v:26:y:2012:i:4:p:125-46

Note: DOI: 10.1257/jep.26.4.125
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  1. John Knight & Wei Wang, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," The World Economy, Wiley Blackwell, vol. 34(9), pages 1476-1506, 09.
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  9. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," NBER Working Papers 14546, National Bureau of Economic Research, Inc.
  10. Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2012. "Why Are Saving Rates So High in China?," NBER Chapters, in: Capitalizing China, pages 249-278 National Bureau of Economic Research, Inc.
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  13. Morris Goldstein & Nicholas R. Lardy, 2009. "The Future of China's Exchange Rate Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa87.
  14. Ge, Suqin & Yang, Dennis T., 2012. "Changes in China's Wage Structure," IZA Discussion Papers 6492, Institute for the Study of Labor (IZA).
  15. BAI, Chong-En & QIAN, Zhenjie, 2010. "The factor income distribution in China: 1978-2007," China Economic Review, Elsevier, vol. 21(4), pages 650-670, December.
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Cited by:
  1. Julan Du & Hongsheng Fang & Xiangrong Jin, 2013. "Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment," Working Papers 232013, Hong Kong Institute for Monetary Research.
  2. Ma, Guonan & Yang, Dennis T., 2013. "China's High Saving Puzzle," IZA Discussion Papers 7223, Institute for the Study of Labor (IZA).
  3. Keyu Jin & Stéphane Guibaud & Nicolas Coeurdacier, 2011. "Credit constraints and growth in a global economy," LSE Research Online Documents on Economics 35706, London School of Economics and Political Science, LSE Library.
  4. Rod Tyers, 2014. "Analysing the Short Run Effects of China’s Economic Reform Agenda," CAMA Working Papers 2014-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.
  6. Zuzana Fungácová & Laurent Weill, 2014. "Understanding Financial Inclusion in China," Working Papers of LaRGE Research Center 2014-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  7. Rod Tyers, 2014. "International Effects of China’s Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2014-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  8. Vipin Arora & Rod Tyers & Ying Zhang, 2014. "Reconstructing the Savings Glut: The Global Implications of Asian Excess Saving," CAMA Working Papers 2014-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Joshua Aizenman & Yothin Jinjarak & Nancy Marion, 2014. "China’s Growth, Stability, and Use of International Reserves," Open Economies Review, Springer, vol. 25(3), pages 407-428, July.
  10. Halvor Mehlum & Ragnar Torvik & Simone Valente, 2013. "China's Savings Multiplier," Working Paper Series 14713, Department of Economics, Norwegian University of Science and Technology.
  11. Sarlea Mihaela & Manta Stefan George & Vaidean Viorela Ligia, 2013. "The Role Of Savings Rate In Deepening Macroeconomic Imbalances In China," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 1018-1027, July.

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