How Will China's Saving-Investment Balance Evolve ?

Abstract

This paper investigates how China's saving, investment, and saving-investment balance will evolve in the decades ahead. Household saving in China is relatively high, compared to OECD countries. However, much of China's high economy-wide saving, and the difference between China and other countries, are due to unusually high enterprise and government saving. Moreover, cross-country empirical analysis shows that economy-wide saving and investment in China are higher than what would be expected, even adjusting for differences in economic structure. Combined, these findings suggest that much of China's high saving is the result of policies particular to China. Looking ahead, the cross-country econometric results suggest that purely on the basis of projected structural developments-including development, changes in economic structure, urbanization, and demographics-saving and investment would both decline only mildly in the coming two decades, with ambiguous impact on the current account surplus. However, the potential effect on saving, investment, and the saving-investment balance of several policy adjustments could be large. These policies are identified and their likely impact assessed and quantified. This exercise suggests that rebalancing along these lines should reduce both saving and the current account surplus over time, although the surplus is unlikely to turn into a deficit soon.

Can China’s Growth be Sustained? A Productivity Perspective

“…Although the purpose of our work was basically to update the data for a few years, each of the variables involved some 1989. Capital stock was the most problematic, but we basically followed Kuijs (2006), who based his estimates on Wang and Yao (2003).…”

From internal imbalances to global imbalances: a survey on the causes of China’s export-led growth

“…Kraay, 2000;Kuijs, 2006;Qi and Prime, 2009), doubts remain as to whether the strong rise in income inequality, reported in Section 3, merely reflects higher income uncertainty. Chamon et al (2010, p. 11) report that none of their income measures show evidence of a clear trend in the variance of permanent shocks, while they find a clear upward trend in the variance of transitory shocks.…”

Testing the Validity of the Triplet Deficit Hypothesis for Turkey: Asymmetric Causality Analysis

“…For example, the studies of Hatsopoulos et al (1988), Fischer and Easterly (1990), Hakkio (1995), Milesi-Ferretti and Razin (1996), Higgins andKlitgaard (1998), Cooper (2001), Mann (2002), Gale and Orszag (2003), Labonte (2005), Hubbard (2006), Szakolczai (2006), Elwell (2007Elwell ( , 2010 and Feldstein (2008) can be adduced for the theoretical studies about triplet deficit. Some empirical studies on this topic have argued that the triple deficit hypothesis is valid (Zaidi, 1985;Roubini, 1988;Baxter and Crucini, 1993;Eisner, 1994;Freund, 2005;Kuijs, 2006;Gruber and Kamin, 2007). For example, Penati and Dooley (1984), in their study of 19 industrialized countries, demonstrated the validity of the triple deficit hypothesis which emphasizes that imbalances emerge in the current account because of changes in the volume of savings.…”

“…In a study of data from 25 industrialized countries for the period 1970-1997, Freund (2005 stated that a reduction in investment expenditures could reverse current account deficits by causing an increase in investment rates. Kuijs (2006) analyzed data for the period 1980-2005 and found that the triple deficit hypothesis applied in reverse to the Chinese economy and called this a case of 'triple surpluses'. In their study of 61 countries for the period 1982-2003, Gruber and Kamin (2007) stated that globally increasing savings negatively affected economies that experienced a savings gap and thus caused an increase in the current accounts deficit.…”

“…However, the findings of several other studies support the REH (Dewald and Ulan, 1990;Kim, 1995;Kaufmann et al 2002;Kim and Roubini, 2008;Ratha, 2012). Yet, some studies have also cast doubts on the validity of both traditional and REH approaches and have argued that the savings-investment gap is effective in the emergence of a current account deficit (Milesi-Ferretti and Razin, 1996;Higgins and Klitgaard, 1998;Cooper, 2001;Gale and Orszag, 2003;Freund, 2005;Hubbard, 2006;Kuijs, 2006;Gruber and Kamin, 2007). Although there was a budget surplus in some developed countries, growing current account deficits cast doubts on the validity of the twin deficit hypothesis.…”