Twofish's Blog

December 27, 2006

Note on Chinese saving rates

Filed under: academia, china, economics, finance — twofish @ 7:27 pm

One thing that is important to recognize is that the United States is at a trade deficit with just about everyone, so changing the RMB value isn’t going to change anything, what you need to do is to cause the dollar to drop with respect to everyone. If you just change the RMB value, then you change the US-China trade deficit but not the deficit with respect to other parties.

Also, it’s not clear to me that it is a good thing for China to save less given the demographic shift that is going to happen once the baby boomers retire, nor do I think that replacing labor with capital is such a bad idea, given the demographic shift that is going to come.

It also concerns me that when talking about optimal policies for China, that Western economists ignore demographics. If you ask your average Chinese peasant *why* they are saving so much, they will respond with healthcare, education, and retirement, and that seems to be a lot more sensible an answer than what is coming out of economic think tanks.  If you tell them that the collective wisdom of the Western economists is that they should spend their retirement money now and have nothing left in twenty years, they will (correctly) question your sanity.

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3 Comments »

  1. Undervalued RMB is just an excuse of US to argue for more interest with China. Paulson just said that China did not manipulate the currency. hehe, how ironic it is.

    Japan and most EU nations are getting aging. However, they can still keep growing. Why? I think the productivity is the key.

    Your blog is really interesting and I will keep my eyes on it:)

    Comment by hulun — December 27, 2006 @ 10:28 pm

  2. […] Renminbi I found the following at https://twofish.wordpress.com/2006/12/27/ note-on-chinese-saving-rates: […]

    Pingback by Renminbi « Ten Frogs — December 29, 2006 @ 6:36 pm

  3. […] December 29th, 2006 at 10:36 pm (economics, China, finance) I found the following at https://twofish.wordpress.com/2006/12/27/ note-on-chinese-saving-rates: […]

    Pingback by Renminbi « Ten Frogs — December 29, 2006 @ 11:46 pm


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