The ongoing global financial crisis, triggered by the bursting of the property bubble in the United States, has severely hit the world economy over the past year. No country, including fast-growing China, has been immune to the financial woes.
Global efforts are being mobilized to tackle the unprecedented financial tsunami. But former US treasury secretary Henry Paulson recently blamed China and other countries for causing an imbalance in the global economy and pushing the crisis with their high bank deposits. Federal Reserve Chairman Ben Bernanke even claimed that such a high savings rate in foreign countries, in China in particular, had induced the bubble in the US real estate industry to bulge.
Such groundless criticisms from high-ranking US officials are extremely detrimental to the current worldwide battle against the crisis. They not only run counter to the simple economic principles, but have also confounded the relations between the victim and wrongdoer. These remarks also exhibit the obvious intention of the top US financial authorities to shirk their responsibilities for poor financial performances and shift domestic dissatisfactions to other countries.
It is true that since its adoption of the reform and opening up policy in 1978, China has achieved rapid economic development and the income of its people has steadily risen. With a tangible growth of its national wealth, the country's bank savings level has also risen at a fast speed.
All these achievements come from the hard work of Chinese people over the past century and the country's scientific and highly efficient policies since the reform and opening up. However, we are also aware that the country's per capita income is still at a relatively low level compared with that of other countries.
The country is still in the process of profound industrial and economic structural adjustments. It is still financially unable to set up a social security system that covers all of its population. In this specific context, ordinary Chinese people have to save their money in banks in case of an emergency. Such a high deposit ratio has contributed to a certain degree to the country's social stability. As the world's most populous country, a stable China means larger contribution to the world's stability and prosperity.
China should not be overconfident with its current high savings ratio. To improve people's living conditions, their huge purchasing capability should be transformed into tangible consumption. To step up the process, the Chinese government is mapping out and implementing a sweeping reform package aimed at better protecting the fundamental interests of tens of millions of disadvantaged farmers and improving ordinary people's welfare.
The headways made over the past decades have not changed the country's economic aggregate which is still only one-fourth that of the US. Also, its per capita GPD accounts for only 5 percent and 7 percent of that in the US and Japan. Thus, a certain period of time is still needed to help the country realize a savings-to-consumption transformation.
Chinese people have long had a consumption culture of their own, as do American people. For a long time, confident American consumers have got accustomed to overspending. Their consumption confidence stems from their country's strong economic foundation and is based on encouragement by the government.
However, things are different for China. The country's economic take-off needs outside cooperation. To this end, the country has opened its labor and capital markets and tried to protect foreign capital. Cooperative measures adopted by the Chinese government in the context of globalization have been widely welcomed by the US government and private investors.
Also, fruitful cooperation between China and the US since normalization of their diplomatic ties has brought huge benefits to the peoples of the two countries. It is known that US capital invested in China over the past three decades has gained handsome returns. Also, China's exports, a large portion of which comes from the manufacturing plants transferred to China by developed nations and even some emerging economies, have greatly benefited ordinary foreign consumers. China has extended considerable cooperation as the US is thirsty for foreign funds to buy its treasury bonds.
It is obvious that Paulson's conclusion that China's high savings rate has hampered American people's consumption and triggered the financial crisis is contrary to reason. It is China's economic buildup that has resulted in the country's annual $50 billion-worth of imports from the US. It is now one of the largest exporting destinations for the US. As China develops further, its potential for imports is expected to get wider. However, the US has exerted a strict ban on its hi-tech exports to China, which the latter badly needs. Chinese people's expanded domestic consumption will first benefit the country's economy, given that their consumption will mainly focus on home products.
It is unrealistic to expect that the Chinese people, even after they get rich, will buy US properties and financial derivatives to prop up the bubbles in its two sectors.
American people's long-used model of overspending, the country's ill-conceived financial oversight system and its poor performance are the real causes behind the financial crisis.
The author, Shen Dingli, is director of the Center for American Studies at the Shanghai-based Fudan University.
(China Daily January 22, 2009)