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Hey buddy, can you spare a renminbi?
Ever wonder how China has managed to buy up $770 billion of US treasuries? China is now the leading foreign holder of US debt (and has been for the last 12 months), followed by Japan.
It’s not just the $200 billion they rack up each year in their favorable trade balance with the US but their ability to not spend it. The national savings rate is about 50%. Now that doesn’t necessarily mean that the individual family is savings that incredibly high percentage. The funds may never actually reach them. The money may stop at the company level. Of course China is investing in its own infrastructure and technology (witness the recent very successful Beijng Olympics) but in large part, they are exporting their hard-earned cash and putting it into US Treasuries.
China considers internal financial data to be a state secret, so all numbers either published by the country or estimated by outsiders should be taken with a grain of salt. If the savings rate calculation is correct, it is the highest in the world.
One theory is that the root motivation is China’s one-child rule. The birth rate in many developing nations is high because it is the de-facto “retirement” system. You raise children so that at least one of them will take care of you when you get old. If you’re limited to one child, you better have a back up plan, just in case — hence, savings. But it’s not clear that this theory holds water, if indeed, the savings are not actually reaching the average person.
Since 2000, the savings rate in the US declined continuously. In 2007, the US disposable savings rate* reached a low of 0%. It increased significantly in 2008 and on into 2009. This April, it shot up to 5.7%, the highest it’s been since 1995.
So, how’s your savings rate?
Photo credit: flickr
*Disposable income is total income after taxes. Or at least that’s the short version of the definition. Our Bureau of Economic Analysis managed to write 23 pages on the finer points of disposible income (for example, it includes realized, but not unrealized capital gains). Our tax dollars at work.
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I recently read another very interesting factor about China’s infrastructure investments: China is not only spending tons of money on infrastructure in general, they seem to be into the sustainable energy movement in a big way. Estimates place current year’s investments in renewable energy, low-carbon vehicles, high-speed rail, an advanced electric grid, efficiency improvements, and water-treatment pollution controls at more than 3% GDP (US $221 billion). US stimulus plan allocates merely $112 billion ( 0.5% GDP) to similar investments here.
So – in spite of declining exports, it appears that China is positioning itself to begin internal growth and job creation by aggressive focus on a long-term strategy including cleantech…
Food for thought, indeed. I suspect these times will be looked back upon and remembered as some sort of a catalyst for what our future brings.
Thanks for the great post, Helen – keep up the good work!
jb
Good point, Jim. China is also heavily involved in the production of polysilicon for the solar cell industry — again, more cleantech.
I must say though, that I am sorry to have posted this article today (of all days). June 4th is the 20th anniversary of the massacre at Tiananmen Square. I sincerely apologize to anyone who might have been offended.
Regards,
Helen