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Aggregate Savings and External Imbalances in China

  • Yang, Dennis T.

    ()

    (University of Virginia)

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. The current 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. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distortions. I document major trends in aggregate savings, investment, trade, and net foreign asset positions in China, and explore options for policy reforms aimed at rebalancing the Chinese economy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6964.

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Length: 40 pages
Date of creation: Oct 2012
Date of revision:
Publication status: published in: Journal of Economic Perspectives, 2012, 26 (4), 125–146.
Handle: RePEc:iza:izadps:dp6964
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  1. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  2. Charles Yuji Horioka & Junmin Wan, 2006. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," ISER Discussion Paper 0676, Institute of Social and Economic Research, Osaka University, revised Sep 2007.
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  7. Ge, Suqin & Yang, Dennis T., 2012. "Changes in China's Wage Structure," IZA Discussion Papers 6492, Institute for the Study of Labor (IZA).
  8. Yiping Huang & Kunyu Tao, 2010. "Factor Market Distortion and the Current Account Surplus in China," Asian Economic Papers, MIT Press, vol. 9(3), pages 1-36, October.
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  10. Zhang, Haiyan, 2008. "Corporate governance and dividend policy: A comparison of Chinese firms listed in Hong Kong and in the Mainland," China Economic Review, Elsevier, vol. 19(3), pages 437-459, September.
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  12. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," Economie Internationale, CEPII research center, issue 122, pages 5-40.
  13. Knight, John & Wang, Wei, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," BOFIT Discussion Papers 15/2011, Bank of Finland, Institute for Economies in Transition.
  14. 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.
  15. Kjetil Storesletten & Fabrizio Zilibotti & Zheng Song, 2009. "Growing like China," 2009 Meeting Papers 912, Society for Economic Dynamics.
  16. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, vol. 14(3), pages 545-570, September.
  17. Elena Ianchovichina, 2007. "Are duty drawbacks on exports worth the hassle?," Canadian Journal of Economics, Canadian Economics Association, vol. 40(3), pages 881-913, August.
  18. Liugang Sheng, 2013. "Did China diversify its foreign reserves?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 102-125, 01.
  19. Wing Thye Woo, 2008. "Understanding the Sources of Friction in U.S.-China Trade Relations: The Exchange Rate Debate Diverts Attention from Optimum Adjustment," Asian Economic Papers, MIT Press, vol. 7(3), pages 61-95, October.
  20. 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.
  21. Chao, Chi-Chur & Yu, Eden S.H. & Yu, Wusheng, 2006. "China's import duty drawback and VAT rebate policies: A general equilibrium analysis," China Economic Review, Elsevier, vol. 17(4), pages 432-448.
  22. Guonan Ma & Haiwen Zhou, 2009. "China's Large and Rising Net Foreign Asset Position," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(5), pages 1-21.
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