china shopping sale Harry Wai/NurPhoto via Getty Images

Why China Must Save Less

China’s rapid investment-led growth in recent decades has been fueled by high levels of national savings, but this unbalanced development path appears increasingly risky. The country must now reduce its excessive savings by shifting to a model focused on domestic consumption and opening up the service and non-trade sectors.

SHANGHAI – In his influential 1954 article “Economic Development with Unlimited Supplies of Labour,” the future Nobel laureate economist Arthur Lewis concluded that “the central problem in the theory of economic development is to understand the process by which a community which was previously saving and investing 4 or 5 per cent of its national income or less, converts itself into an economy where voluntary saving is running at about 12 or 15 per cent of its national income or more.” That process, Lewis argued, “is the central problem because the central fact of economic development is rapid capital accumulation (including knowledge and skills with capital).”