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China’s Saving and Global Economic Performance

Author

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  • Rod Tyers

    (University of Western Australia and Research School of Economics Australian National University)

  • Ying Zhang

    (University of Western Australia)

  • Tsun Se Cheong

    (University of Western Australia)

Abstract

China’s net saving abroad has been slowing and will slow further as its households consume more, its corporations save less and its central and provincial governments continue in combined deficit. These changes are associated with weaker global economic performance but, importantly, they stem from the acceptance by Chinese governments of slower and more “inward focussed” future growth. Yet these changes will raise global financing costs, to an extent that has been recently disguised by “quantitative easing” (QE) in the US, Europe and Japan. The coincidence of reduced excess-saving in both China and Japan with the unwinding of these QE policies, both of which will contribute to an excess supply of long term bonds, could see very substantial tightening in financial markets. Moreover, the substitution of China’s outward FDI for reserve accumulation will redirect what remains of China’s excess saving away from the US, causing a disproportionate rise in the cost of US investment financing, possibly stifling the recovery there. The effects of this pessimistic scenario could be offset by fiscal consolidation in the major economic blocs, so that global debt falls as global saving falls, leading to a soft landing for private investment and continued expansion.

Suggested Citation

  • Rod Tyers & Ying Zhang & Tsun Se Cheong, 2013. "China’s Saving and Global Economic Performance," Economics Discussion / Working Papers 13-20, The University of Western Australia, Department of Economics.
  • Handle: RePEc:uwa:wpaper:13-20
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    References listed on IDEAS

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    6. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, February.
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    9. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2007. "Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery," NBER Chapters,in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 103-132 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Rod Tyers, 2016. "China and Global Macroeconomic Interdependence," The World Economy, Wiley Blackwell, vol. 39(11), pages 1674-1702, November.
    2. Rod Tyers, 2013. "A Simple Model to Study Global Macroeconomic Interdependence," Economics Discussion / Working Papers 13-23, The University of Western Australia, Department of Economics.
    3. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    4. Rod Tyers, 2014. "Pessimism Shocks in a Model of Global Macroeconomic Interdependence," Economics Discussion / Working Papers 14-28, The University of Western Australia, Department of Economics.

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