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Savings and Investment in the PRC

Andrew Papadimos

This articles is from Chinese Business Center

One of the most prominent characteristics of the PRC's economy has been its people's high propensity to save. This has occurred more as a result of a lack of consumer goods than a genuine desire to save, however. During the 1980s average gross domestic saving as a percent of GDP was 32.5% - higher than any other country in Asia - and during its peak in 1990, gross domestic saving in the PRC reached 39.2%. Coupled with this as been a high propensity for the government and TVEs to reinvest in capital construction projects. Except for 1990 and 1991, gross domestic investment as been consistently higher than gross domestic savings - with an average of 34.6% of GDP during the 1980s. Again - as with gross domestic savings - gross domestic investment, as a percentage of GDP is higher in the PRC than anywhere else in Asia.

Note: Figures are calculated as a percentage of GDP. Data for 1992 is estimated. Source: ADB, Asian Development Outlook 1991, Tables A7 and A8.

Graph displays the recent trends in the PRC's savings and investment ratios. As depicted, there has occurred in the PRC a general trend to save more and invest less, with the differential between savings and investment of 4.8% of GDP in 1985 being narrowed to zero in 1992. The situation occurring in 1990 - where savings reached 39.2% of GDP - is unlikely to continue. As previously discussed, 1988 - 1990 represented a period of strictly enforced austerity measures in the PRC, and severe shortages of consumer items meant that there was even less for Chinese citizens to spend their savings on than usual.

It is likely that high levels of gross domestic savings and investment will continue into the foreseeable future. Only when the PRC's manufacturing sector can cope with the domestic demands of one billion people will be any significant change in savings rates. Until that time, as the PRC government and TVEs continue to invest in capital construction projects, gross domestic investment will also continue to take up a sizeable share of GDP.

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