BEIJING,Aug. 10 -- China's high savings rate is expected to fall substantially in coming years as its workforce shrinks, the population ages and social security spending increases, a BIS report shows.
In research published by the Bank for International Settlements (BIS) on the "myth and reality" of China's savings rate, Ma Guonan and Wang Yi found that the Asian giant needs its population to spend more in order to sustain rapid economic growth in coming years.
The researchers, who were writing in their personal capacity, also reject claims that Chinese State firms have been benefiting from high savings thanks to exchange rate distortions and subsidies designed to drive economic growth.
They point out that "less advantaged" and more efficient firms have been the ones posting the greatest gains in earnings in recent years rather than State-owned companies.
China's gross national savings soared from 39.2 percent of output in 1990 to 53.2 percent in 2008, far higher than the United States, which saved only 12.2 percent in 2008.
Even compared to other Asian giants — Japan with 27 percent in 2007 and India with 33.6 percent in 2008 — China's share of savings as a percentage of gross domestic product (GDP) is significantly larger.
Nonetheless, the population and social trends that have underpinned China's growth and savings rates are likely tail off significantly over the next decade, the two Chinese researchers argued.
In the wake of the global slump, world leaders and economists have been asking China to spend more, rather than pin its economic growth on exports to the West, in order to help address world trade imbalances.
Ma, a BIS economist and Wang, who is from the Chinese central bank, said however that the current savings trend by Chinese households will not last.
The swelling working population in recent years has boosted savings in recent years, they said.
In addition, large-scale corporate restructuring between 1995 and 2005 increased job uncertainty, forcing workers to set aside more money in case they were fired. The lack of a social safety net also pushed workers to make "precautionary savings."
Beyond households, government savings have also been increasing in tandem, as more is being set aside to meet pension needs which are expected to rise significantly as the population ages.
However, these trends are expected to be reversed in coming years.
"It is reasonable to assume that the large-scale labor retrenchment observed during 1995 to 2008 is by and large been behind us," say the researchers.
In addition, China is expected to enter into a phase of "accelerated population ageing within a decade." This means that the workforce will decline, leading to a fall in overall income and therefore savings.
At the same time, infrastructure spending is expected to continue, in order to provide for the ageing population and the urbanization of the country.