<p>Much attention has been directed toward China's high savings rate (Broda et al. 2009, Prasad 2009, Reisen 2009). Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China's current account surplus and the US consumer debt and trade deficit. When national savings exceeds investment, the excess savings becomes China's current account surplus.</p> <p>Given its far-reaching effects, both private sector analysts and policymakers have attempted to trace the causes of China's high savings rate and to predict how long it will last. Some have attributed the savings primarily to Chinese corporations. Others point to a precautionary savings motive â€” as Chinese are worried about costs of healthcare, education, and old-age pensions and are unsure about how much these costs might change over time, they save more.</p> <p>But these explanations may not be the most important part of the story. For example, while the Chinese corporate savings rate is high, the pattern is consistent with many countries. For example, Korea and Japan always have an even higher corporate savings rate than China. In fact, corporate savings rates in most countries have experienced a steady rise in the recent decades. In research with Tam Bayoumi and Hui Tong (2009), we show that to understand why China's national savings rate is so high, the corporate sector is the wrong place to start.</p>
<a href="http://www.voxeu.org/index.php?q=node/4568">VoxEU.com</a>. February 06, 2010.