The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy


  • The views expressed in this paper are those of the authors and not necessarily those of BIS. We wish to thank the useful comments by the participants of the Conference “Intra-Europe Imbalances, Global Imbalances, International Banking and International Financial Stability” jointly organised by DIW and University of Leipzig in Berlin during 17–18 September 2012, and by the two reviewers of this journal. Any remaining errors are ours.


China's current account surplus widened from the late 1990s, and its private consumption fell to one third of gross domestic product (GDP). We examine these domestic and external imbalances from two perspectives: the saving-investment balance and the effective renminbi exchange rate. China's large external surplus has arisen neither from anaemic consumption nor from weak investment but rather from the saved windfalls from favorable demographics, market liberalization, robust restructuring and World Trade Organization (WTO) accession. Looking ahead, as these windfalls fade, saving will subside. The exchange rate is already playing a supporting role in rebalancing the Chinese economy, and the real effective exchange rate based on unit labor costs has appreciated very sharply. Prospective savings-investment and exchange-rate developments point to a higher consumption share and a narrowing of China's current account surplus.