July 11, 2005

TRADE IMBALANCE:

In Beijing, A Growing Problem (Sebastian Mallaby, July 11, 2005, washington Post)

Slower growth is expected to bring a tripling of China's trade surplus this year, triggering more friction with Congress. But the downward spiral is more than just a cyclical forecast. It's about Chinese savings and investment.

Right now China saves prodigiously, putting aside nearly 50 percent of gross domestic product. But it invests almost as much, plowing nearly all the savings back into its growth machine. The small gap between savings and investment drives China's global trade surplus. The downward-spiral theory holds that the gap will grow over the next five to 10 years, and the trade surplus will grow with it.

Why would the gap grow? Well, China's savings are driven by its demographics. Because of the one-child policy, people don't have enough kids to take care of them in old age; and life expectancy is rising. Public safety nets are full of holes, so people have to provide for themselves. All this means Chinese savings probably won't fall much. Supporting this theory, Japan and South Korea carried on saving furiously until they were a lot richer than today's China.


Trade you this pretty piece of paper for a car, four tvs, a wardrobe....

Posted by Orrin Judd at July 11, 2005 2:33 PM
Comments

The new Manhattan project.

Posted by: Luciferous at July 11, 2005 5:10 PM

As usual, I await the comments of the estimable 'X'.

That said, I have been saying for years here that you can't trust the economic numbers reported by the ChiComs.

The parents I met on my last China trip are not 'saving' much, notwithstanding that they had but one child.

Times are good in Beijing, but I'm not so sure how much is based on savings, and how much on borrowing.

Posted by: Fred Jacobsen (San Fran) at July 12, 2005 2:45 AM
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