China Focus: Chinese economists defend savings in economic debate

Special Report:Global Financial Crisis

BEIJING, Jan. 7 (Chinese media) -- With the global economic

downturn taking its toll on China's households and businesses, Chinese

economists have moved to defend the nation's savings rate against charges that

it has aggravated the crisis.

The Financial Times on Jan. 2 reported U.S. Treasury

Secretary Hank Paulson as saying, "In the years leading up to the crisis,

super-abundant savings from fast-growing emerging nations such as China and oil

exporters ... put downward pressure on yields and risk spread everywhere."

Paulson said this laid the seeds of a global credit

bubble, the British newspaper reported.

His argument was largely endorsed by Federal Reserve

chairman Ben Bernanke, according to the Financial Times.

However, Zhang Yuyan, an international economics

expert, said a major cause of the crisis was the unchecked business operations

of U.S. financials in which the banks repackaged mortgages, including sub-prime,

into investment products and sell to financial institutions worldwide.

He also said it was illogical to blame China's high

savings rate and purchase of U.S. treasuries for low U.S. interest rates kept by

the Federal Reserve under former chairman Alan Greenspan.

The Federal Reserve kept interest rates at

historically low levels for three years before 2004, with the lowest rate at 1

percent in June 2003, which economists said helped drive the U.S. economy at

that time but also created a huge housing bubble.

"China has had high savings rates for the last 30

years, not only in recent years. Moreover, the U.S. interest rate is controlled

by the Federal Reserve, not anyone else," he said.

Tan Yaling, a Beijing-based financial expert, echoed

Zhang's view.

"It is really selfish to blame China and other

developing countries for the global financial crisis since the world economic

order has been dominated by developed countries," she said.

Developing countries with supply economies had little

say over world economic affairs, she said.

People's Bank of China (PBOC) governor Zhou Xiaochuan

said lastmonth at the fifth China-U.S. strategic economic dialogue that U.S.

overspending and heavy reliance on debt were key reasons for the crisis. He

urged the U.S. to increase savings and reduce budget and trade deficits.

SAVING FOR GOOD

Economists estimated China's savings rates (the

percentage of savings in a person's disposable income) remained between 30

percent and 40 percent over the years.

PBOC vice governor Yi Gang said on Dec. 26 Chinese

individual bank savings had exceeded 20 trillion yuan (2.9 trillion U.S.

dollars) while loans, including those for cars and housing, added up to just 3.7

trillion yuan by the end of September 2008.

"This indicates the debt level of Chinese households

is quite low and such balance sheets are very healthy compared with those for

U.S. and European households, making it possible to create room for

development," he said.

In addition, the balance sheets of the financial

sector, companies and the government were all in good shape. "The fundamentals

of the Chinese economy and its financial sector are good," he said.

Ding Zhijie, deputy dean of the University of

International Business and Economics finance school, said high savings were a

major weapon helping China weather the impact of the global financial crisis.

A high savings rate, along with cheap labor and a

huge domestic market, had enabled China and its financial sector to better deal

with the crisis, he said. It also served as an indicator of insufficient

domestic demand.

Ding's viewpoint echoed a November report by Bank of

America Corp., which said Asian financial markets led by China and India were

likely to better cope with the financial crisis as higher savings would help

borrowers to weather the global economic slump.

Fan Gang, a Beijing-based economist and member of the

central bank's monetary policy committee, attributed China's high savings rates

to factors that handicapped the growth of domestic consumption -- the absence of

a sound social security system, including retirement program, health and

education.

Another factor was that the annual incomes of many

Chinese were still low, said Fan.

Chinese farmers were now more willing to spend so the

government had launched the "sending household appliances to countryside" drive

to help stimulate the economy.

Two months ago, the government offered a 13-percent subsidy to farmers buying designated brands of household appliances, such as TVs, refrigerators, mobile phones and washing machines.