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China's Central Bank: The Meat In A Krugman-stash Sandwich

In his column today, Paul Krugman riffs on the topic of Sahil's post last night--China's excessive saving rate--except that Krugman's a bit more skeptical of Chinese central bank governor Zhou Xiaochuan:

Yet the day after his new-reserve-currency speech, Mr. Zhou gave another speech in which he seemed to assert that China’s extremely high savings rate is immutable, a result of Confucianism, which values “anti-extravagance.” Meanwhile, “it is not the right time” for the United States to save more. In other words, let’s go on as we were.

That’s also not going to happen.

The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.

I tend to agree with Krugman here. Yes, as Zhou writes in the paper Sahil mentioned, the East Asian countries had reasons for raising their national saving rate after the financial crises of the '90s. (Though they were already pretty damn high beforehand--37.5 percent in China--so that explanation only gets you so far.) And, yes, there are probably some cultural reasons for the high rate of saving, as Zhou writes. But a lot of this sounds like a rationalization for modern-day mercantilism, and, as Krugman says, it's not sustainable. The Chinese (and Japanese and Germans) just can't keep counting on us to hoover up all their consumption goods. Their own consumers are going to have to start shouldering the burden eventually.  

--Noam Scheiber