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    China Business
     May 24, '13


German savings, crisis in Europe, and China

Beijing-based economist Michael Pettis has carved out through his "China Financial Markets" blog a distinct position with his commentaries on the Chinese economy, notably with his consideration of the difficulties it faces with its necessary rebalancing towards a more consumption-based model. Asia Times Online here draws the attention of Pettis' analyses to a wider public with brief extracts from his latest posting.

One of the reasons that it is been so hard for a lot of analysts, even trained economists, to understand the imbalances that were


at the root of the current crisis [in Europe] is that we too easily confuse national savings with household savings. ...

... while China's savings rate is extraordinarily high, the Chinese household savings rate is merely in line with those of similar countries in the region, and in fact lower than some. Chinese households are not nearly as thrifty as their national savings rate implies. Why, then, is China's savings rate so extraordinarily high? ... The main reason ... is ... the very low household income share of GDP. ...

This is a consequence of policies Beijing put into place many years ago that goose GDP growth by constraining the growth in household income. ... Because savings is simply GDP less total consumption, and most consumption is household consumption, the fall in the household income share of GDP is the obverse of the rise in China's extraordinarily high savings rate. ...

In the 1990s Germany could be described as saving too little ... But this changed in the first years of the last decade. ... more.

Michael Pettis is a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has taught, from 2002 to 2004, at Tsinghua University's School of Economics and Management and, from 1992 to 2001, at Columbia University's Graduate School of Business. He is also Chief Strategist at Guosen Securities (HK), a Shenzhen-based investment bank.

(Reprinted with permission. For Michael Pettis' blog, see here.

(Copyright 2013 Michael Pettis.)






Investment and consumption
May 14, '13


 

 
 



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