Quote:
Originally Posted by fluffy0000
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.
|
You are right about insurance, but it's not the bank's role, it's the government's role. The main reason for the savings rate is culture (being thrifty is seeing as a virtue) and also lack of a safety net in social services. People need to stash up for a rainy day in China because there is no Medicare or unemployment benefits or anything like that should things go wrong.
It may not be perfect but China is in hell of lot of a better position than US at the moment which pumped up its phoney economy through reckless borrowing. With the national debt at 11 Trillion or whatever it is now, the US is practically bankrupt, and the printing press is running 24/7 (or will be if at any stage China refuses to buy more treasury bills).
What China needs to do is spur internal consumption to save itself, it cannot rely on US to consume forever. The fall in demand from the US is what's mainly causing China so much pain. Luckily, the government isn't stupid and it is doing this now by giving farmers REBATES on white goods and also city dwellers REBATES on small cars (up to 1.6L), another xxx billions in public health, and of course $1 Trillion yuan in mainly infrastructure investments.
How effective this is, well the jury is still out but spending money on infrastructure is gotta be a lot wiser than spending money to prop up demand. You can't spend yourself out of a recession, you have to PRODUCE your way out of it.
Yes the Chinese banking system is far from great but right now it's doing a hell of a lot better than the US, none of which is worth a penny.