Journal of Economic Perspectives: Vol. 26 No. 4 (Fall 2012)


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Aggregate Savings and External Imbalances in China

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Yang, Dennis Tao. 2012. "Aggregate Savings and External Imbalances in China." Journal of Economic Perspectives, 26(4): 125-46.

DOI: 10.1257/jep.26.4.125


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.

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Yang, Dennis Tao (U VA)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
E23: Macroeconomics: Production
F13: Trade Policy; International Trade Organizations
F32: Current Account Adjustment; Short-term Capital Movements
O16: Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O24: Development Planning and Policy: Trade Policy; Factor Movement; Foreign Exchange Policy
P33: Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Business, and Aid


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