PBOC official: China's high savings rate not cause for financial crisis

It is neither reasonable nor fair to hold China's high savings rate as the main cause of the global financial crisis, said Zhang Jianhua, an official with the People's Bank of China, the country's central bank, responding to some theories in the West.

Some Western economists believe that emerging economies, including China, have excessive savings, and lend too much to rich economies at a low interest rate. This lending then leads to over-consumption and encourages investors to buy assets with high risks.

In addition, they claim that weak global recovery is also the result of emerging economies' high savings rates.

China's high savings rate should not be doubted

China's high savings rate is in line with the regular pattern of economic development, said Zhang.

"Almost all developed countries have experienced high savings during periods of rapid growth," he said.

In the 1960s and the 1970s, the savings rate in Japan stayed at over 30 percent. That period was exactly when Japan was transforming into an industrialized country. South Korea also witnessed a savings rate as high as 40 percent in the 1980s.

China's sound economic development is to some extent supported by its high savings rate. Savings satisfied the funding demands for industrialization and urbanization, and helped to avoid fluctuation of cross-border financing.

Zhang also noted that an overly high savings rate would also harm development.

"A high savings rate is not our target, but we will use this condition, under which current savings are relatively high, to accelerate industrialization and urbanization, or we may miss this important historical opportunity," he said.

Some Chinese economists predict that China's savings rate will drop by around 12 percentage points in five to 15 years.

EU and the US are beneficiaries of China's high savings

"In fact, the European Union and the United States are the beneficiaries of China's high savings rate," Zhang said.

As the rich economies have no adequate savings to meet the financing demand of domestic investments, their economic development will not be sustainable if there is no outbound financing support.

The problem with the rich economies, said Zhang, lies in the way they use the funds borrowed.

"Massive funds from other countries have provided them with chances to adjust their development modes and economic structure, to enhance competitiveness and strengthen financial regulation, but they failed to seize the chance," he said.

Major economies should seek mutual benefits

The Western countries claim that China should shoulder its responsibility as a country with massive savings, but China has always been a responsible country with its actions.

China implemented responsible yuan interest rate policies during both 1997 Asian Financial Crisis and the current global recession, maintaining the stability of its currency and seeking sustainable economic growth through the expansion of its domestic demand.

"With policies to keep the exchange rate stable and to address economic structural problems, economic structure in China is improving," said Zhang.

By the end of 2009, consumption's contribution to China's economic growth went from less than 40 percent in 2003 to 53.1 percent.

He suggested that the world's major economies should discuss the reason and effects of the problem of high savings rate from a perspective of mutual benefit.

China needs to continue economic restructuring and enlarge domestic demand's contribution to overall economic growth. In addition, China can assure the liquidity and utilization of huge savings through a multi-level and diversified financial market, Zhang said.

He urged developed countries to address the problem of economic imbalances within themselves, make economic growth sustainable, strengthen financial regulation and promote international communication and coordination in order to achieve sound, balanced and sustainable development of the world economy.

By People's Daily Online

http://paper.people.com.cn/rmrb/html/2010-07/29/nw.D110000renmrb_20100729_7-02.htm?div=-1