Who Saves in China, the People or the State?


Making Sense

Paul Solman answers questions from NewsHour viewers and web users on business and economic news most days on his Making Sen$e page. Here’s Thursday’s query.

Name: Betty Sue Carroll

Question: I’d like to know the source of the money that China lends us — whether it is from the personal savings of the Chinese workers or from some vast pool of national wealth. If its origin is family savings accounts, each round of U.S. “quantitative easing” is a serious blow to personal Chinese savings accounts (as to ours) when the buying power of their U.S. holdings is diminished. The source of our borrowed Chinese capital would also provide more understanding of the Chinese reluctance to let their currency float.

Paul Solman: According to the source we most trust on China’s economy, MIT political science professor Yasheng Huang, Chinese “personal savings” constitute money not paid to workers, but retained by companies — mainly state-owned enterprises. In other words, Chinese corporate profits are what the state earns by underpaying labor. Those profits account for the bulk of the “vast pool of national wealth” — Chinese foreign reserves, invested so hugely in U.S. Treasuries. Family savings accounts add some more.

As to rounds of “quantitative easing,” you mean the United States devaluing our currency by creating ever more dollars. But to the extent this has been happening, it is arguably having a much more direct impact on Chinese buying power than you suggest. The Chinese currency is purposely pegged to the U.S. dollar. Thus, if the U.S. dollar loses purchasing power, as it has in terms of commodities from oil to food to gold, so does the Chinese renminbi. Workers are of course paid in renminbi. Thus when U.S. consumers complain about the rising price of commodities like oil or food, you can bet Chinese consumers are doing the same. And indeed, food price inflation is a very volatile issue in China right now.

Look for another China post tomorrow, unless news events intervene.


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This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._