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China’s Saving and Global Economic Performance

Listed author(s):
  • 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)

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.

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File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2013/13-20%20Chinas%20Saving%20and%20Global%20Economic%20Performance.pdf
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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 13-20.

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Length: 34 pages
Date of creation: 2013
Handle: RePEc:uwa:wpaper:13-20
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  1. Barry Eichengreen & Donghyun Park & Kwanho Shin, 2012. "When Fast-Growing Economies Slow Down: International Evidence and Implications for China," Asian Economic Papers, MIT Press, vol. 11(1), pages 42-87, February.
  2. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 546-569, June.
  3. Horioka, Charles Yuji & Terada-Hagiwara, Akiko, 2012. "The determinants and long-term projections of saving rates in Developing Asia," Japan and the World Economy, Elsevier, vol. 24(2), pages 128-137.
  4. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, vol. 75(1), pages 30-53, May.
  5. Rod Tyers & Ying Zhang, 2011. "Appreciating the Renminbi," The World Economy, Wiley Blackwell, vol. 34(2), pages 265-297, 02.
  6. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," International Economics, CEPII research center, issue 122, pages 5-39.
  7. Arora, Vipin & Tyers, Rod, 2012. "Asset arbitrage and the price of oil," Economic Modelling, Elsevier, vol. 29(2), pages 142-150.
  8. 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.
  9. Eickmeier, Sandra & Kühnlenz, Markus, 2013. "China's role in global inflation dynamics," Discussion Papers 07/2013, Deutsche Bundesbank, Research Centre.
  10. Golley, Jane & Meng, Xin, 2011. "Has China run out of surplus labour?," China Economic Review, Elsevier, vol. 22(4), pages 555-572.
  11. Ligang Song & Jidong Yang & Yongsheng Zhang, 2011. "State‐owned Enterprises' Outward Investment and the Structural Reform in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 19(4), pages 38-53, 07.
  12. Peter E Robertson & Longfeng Ye, 2013. "On the Existence of a Middle Income Trap," Economics Discussion / Working Papers 13-12, The University of Western Australia, Department of Economics.
  13. Jane Golley & Rod Tyers, 2012. "Population Pessimism and Economic Optimism in the Asian Giants," The World Economy, Wiley Blackwell, vol. 35(11), pages 1387-1416, November.
  14. Luke Deer & Ligang Song, 2012. "China's Approach to Rebalancing: A Conceptual and Policy Framework," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(1), pages 1-26, 01.
  15. Rod Tyers, 2012. "Japanese Economic Stagnation: Causes and Global Implications," The Economic Record, The Economic Society of Australia, vol. 88(283), pages 517-536, December.
  16. Kuijs, Louis, 2006. "How will China's saving-investment balance evolve ?," Policy Research Working Paper Series 3958, The World Bank.
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