jk859.jpg Jon Krause

Balancing China’s High Savings

When a developing country has a high savings rate as a result of structural factors, as China does, the best strategy is not to reduce savings through dramatic exchange-rate appreciation, which may kill export industries overnight. Rather, savings should be channeled even more – and more efficiently – to domestic investment in order to avoid large external imbalances.

BEIJING – China’s national savings rate has been very high in recent years, amounting to 52% of GDP in 2008 (the most recent year for which statistics are available), and is often blamed for today’s global imbalances. Countries that save too much export too much, according to conventional wisdom, resulting in high trade surpluses and growing foreign-exchange reserves.

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