Twofish's Blog

August 8, 2006

Notes on Chinese savings rates

Filed under: china, finance — twofish @ 11:02 pm

http://neweconomist.blogs.com/new_economist/2006/08/louis_kuijs.html

Here is a good article on the source of Chinese savings rates.  However, I’d make one further connection……

One connection no one seems to have made is the connection between China’s huge savings rates and the *success* of its reform of state-owned enterprises.  What seems to have happened is that the SOE’s that were losing money have been killed, the social responsibilities of the SOE’s transferred elsewhere.  The problem with this is that now you have SOE’s that are making huges amounts of money, and no one planned on what to do with that money, so it is getting plowed back into massive infrastructure development.

The problem now is to come up with a dividend policy that allows the profits to be reinvested into social goods like health and education.  Also the old canard that “good governance” is needed in SOE’s misses the problem that the SOE’s are right now *too efficient* at generating profits which no one has any idea what to do with.

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