Aggregate savings and external imbalances in China

Abstract

Over the last decade, the internal and external macroeconomic imbalances in China have risen to unprecedented levels. In 2008, Chinas national savings soared to over 53 percent of its GDP, whereas its current account surplus exceeded 9 percent of GDP. This paper presents a unified framework for understa the structural causes of these imbalances. I argue that the imbalances are attributable to a set of policies and institutions embedded in the economy. I pn a unified framework for understanding the joint causes of the high savings rate and external imbalances in China. My explanations first focus on an array c factors that encouraged saving across the corporate, government, and household sectors, such as policies that affected sectoral income distribution, along factors like incomplete social welfare reforms, and population control policies. J then turn to policies that limited investment in China, thus preventing the savings from being used domestically. Finally, I will examine how trade policies, such as export tax rebates, special economic zones, and exchange rate pc strongly promote exports. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distor In conclusion, I recommend some policy reforms for rebalancing the Chinese economy.