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Aggregate Savings and External Imbalances in China

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, China's national savings rate 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 understanding 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 propose 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 of factors that encouraged saving across the corporate, government, and household sectors, such as policies that affected sectoral income distribution, along with factors like incomplete social welfare reforms, and population control policies. I then turn to policies that limited investment in China, thus preventing the high savings from being used domestically. Finally, I will examine how trade policies, such as export tax rebates, special economic zones, and exchange rate policies, strongly promote exports. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distortions. In conclusion, I recommend some policy reforms for rebalancing the Chinese economy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Aggregate Savings and External Imbalances in China

Yang, Dennis Tao
Journal of Economic Perspectives , Volume 26 (4) – Nov 1, 2012
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References (74)

Publisher
American Economic Association
Copyright
Copyright © 2012 by the American Economic Association
Subject
Symposia
ISSN
0895-3309
DOI
10.1257/jep.26.4.125
Publisher site
See Article on Publisher Site

Abstract

Abstract Over the last decade, the internal and external macroeconomic imbalances in China have risen to unprecedented levels. In 2008, China's national savings rate 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 understanding 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 propose 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 of factors that encouraged saving across the corporate, government, and household sectors, such as policies that affected sectoral income distribution, along with factors like incomplete social welfare reforms, and population control policies. I then turn to policies that limited investment in China, thus preventing the high savings from being used domestically. Finally, I will examine how trade policies, such as export tax rebates, special economic zones, and exchange rate policies, strongly promote exports. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distortions. In conclusion, I recommend some policy reforms for rebalancing the Chinese economy.

Journal

Journal of Economic Perspectives – American Economic Association

Published: Nov 1, 2012

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