Monday, 17 March 2008

China's saving mobilisation

Having criticised the World Bank's website in my last post, it is an almost unparalleled source of free information and analysis on the world economy, albeit one seen from the WB's offices. I found the paper entitled "Large domestic non intermediated investments and government liabilities", which answers a question posed in an earlier post: how are China's colossal savings mobilised for their rapid economic growth?

The paper gives an explanation which surprised me. Most of the savings for fixed asset investment are in fact retained profits by companies. The high savings rate is not a story of Chinese society as a whole - households are actually reducing their investments - but a story of China's business owners. The banking sector is not efficient and has bad debts, government doesn't invest much any longer, foreign investment is relatively small, and microfinance and microsaving is not part of the big picture at all.

Because it is companies who are driving the investment, presumably because they are motivated by the expectations of future profits from Chinese growth, which has been a rational position. But the hyper-capitalism this implies in China would seem to be vulnerable to the crashes which capitalism brings, particularly in the absence of Keynesian stabilisers.

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