China's high saving rate benefits global green infrastructure financing
Contrary to the IMF's assumption that China should save less, the country's high saving rate is crucial for financing the developing world's green infrastructure needs. A current account surplus represents net capital outflows that increase China's financial claims on the rest of the world, adding to its wealth and future national income. The G7 and IMF view that China saves too much and should consume more is arbitrary; China's consumption grows alongside its rising national income. The IMF's call for 'consumption-led growth' ignores that reducing saving and investment would slow China's growth. Keynes's paradox of thrift applies to closed economies, not China's open one.
Key facts
- IMF assumes China should save less.
- China's saving finances developing world's green infrastructure.
- Current account surplus equals excess of national saving over domestic investment.
- Saving is exported as net capital outflows.
- Net capital outflows increase China's financial claims on the rest of the world.
- G7 and IMF assume China saves too much.
- China's consumption grows with rising national income.
- Keynes's paradox of thrift is for closed economies.
Entities
Institutions
- International Monetary Fund
- Group of 7
Locations
- China