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Brookings Insitute Mar2/2009
China's Short-term and Long-term Economic Goals and Prospects
China's Economy, China, Global Economics, Global Financial Crisis, U.S. Economic Growth
Wing Thye Woo, Senior Fellow, Foreign Policy, Global Economy and Development
U.S.-China Economic and Security
China's economic situation in 2009 does not look good. The 9.0 percent GDP growth rate in 2008 was not representative of the annualized quarter-to-quarter (q-o-q) growth rate of 2.6 percent in the fourth quarter of 2008. Despite Premier Wen Jiabao's prediction in Davos at the end of January 2009 that China's growth would be 8 percent in 2009, the IMF's January 2009 projection was 6.7 percent, which was down from its November 2008 projection of 8.5 percent. The February 2009 estimate of the number of jobs lost by migrant workers was 20 million, which was double the estimate of December 2008; and an additional 6 to 7 million rural residents were expected to join the migrant work force. The factory-gate price index fell 3.3 percent in January 2009 and is expected to fall 6.3 percent in February 2009. The pace of China's growth slowdown has consistently exceeded the expectations of the Chinese government and most outside analysts.

Why does China have high savings rate?

China’s current account surplus exists because its dysfunctional financial system cannot intermediate the growing savings into investments. The private savings rate is high because China does not have the variety of financial institutions that would, one, pool risks by providing medical insurance, pension insurance, and unemployment insurance; and, two, transform savings into education loans, housing loans, and other types of investment loans. The backward financial system in China has made the private savings rate in China 7.0 to 12.2 percentage points higher than in the US.