Thrifty China, Spendthrift America

The saving rate in China is the highest of any major country. China’s gross saving rate (the percentage of GDP that is not consumed immediately), which includes both public and private saving, is around 50%. By contrast, the saving rate in the United States is the lowest of any major country – roughly 10% of GDP. Almost all other countries fall between these two extremes.

Differences in saving rates matter a lot, and must be a major reason that China’s annual economic growth rate is now a full six percentage points higher than in the US. If people are saving half their income, their investments in capital have the potential to propel the economy at a rapid pace. Saving in China is in part a virtuous circle: rapid economic growth leads to high saving, which in turn sustains rapid growth.

The difference between Chinese and US saving rates has been growing for decades. In the early 1980’s, China’s saving rate was twice as high. Now it is five times higher. Why are these trajectories so different?

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