Americans' Savings Mount As China Worries
Chinese Workers Urged To Spend As Americans Lock Wallets
Jan 28, 2009
While most Americans decided to lock their wallets for the duration of the economic crisis, many went a step further and took what was left from the meltdown and exchanged stock portfolios for savings accounts, declining even to buy government bonds on terms necessary for the fiscal rescue package. According to Paul Kedrosky, Senior Fellow at the Kauffman Foundation, economic data records a spike of 2.8 percent of disposable income in savings since November. It was zero at the beginning of 2008.
Massive Global Impacts
Although the US government would like China to allow the value of its yuan to rise and take pressure off the dollar, it is not expected to oblige and commentators are predicting the greenback's devaluation. The more the dollar is spread around the world, the thinking goes, the less onerous the US stimulus package will prove to be and the less terrible a trillion dollar debt will appear. If the dollar is devalued, will savers raid piggy banks and get back to spending?
If American economists are concerned that China relies too heavily on exporting its goods and not enough on consumption, Chinese economists worry about Americans moving away from their status as "net debtors" to "net savers". It's contributing to "massive global impacts," explained Yuwa Hedrick-Wong, chief economic adviser for Mastercard Worldwide Asia Pacific Region, in a January 6, 2009, Beijing speech.
Precautionary Savers
Constantly worrying about the future, the Chinese have always been precautionary savers. Now, with the previously exuberant Americans doing the same thing, its financial community is looking to people at home to spend some of the 60 percent of precautionary savings they stash yearly and thus change long-time habits. Precautionary saving, so the argument goes, starves the economy although some economists are suggesting that saving is not as bad as it is made out to be. Savings accounts allow banks to lend money and build businesses.
In the spend-to-build-the-economy camp, economists are hoping that the Chinese, at least, continue consuming at their current rate. Some are hopeful that upcoming policies to provide better health care and social welfare will kick-start spending and benefit the country's growth. This may prove difficult because both government and industry mirror the savings habits of the average Chinese.
Middle Eastern Businessmen
Because of the western world's spending pullbacks, the Chinese are looking to other markets. For instance, a Dubai company offering a business to business (B2B) platform serving 100,000 Chinese businesses has opened 12 branches because it is a time, says Omar Hijazi of Tejari, when bilateral trade between China and the Middle East is being promoted (chinatechnews.com). China launched the China-Arab Cooperation Forum in January 2004. The bustling port city of Yiwu in Zhejiang has grown into a hub for selling made in China Arabic products (yiwu-china.org).
US China Trade Imbalances
While pundits worry about US China trade imbalances and currency valuations causing trade wars, Americans are simply returning to their old habits of saving. Perhaps, it's time the Chinese enjoyed some of the consumer products they make and stopped saving quite so much for a rainy day.
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