The Sydney Morning Herald, July 11, 2012
There are several enduring myths about the Chinese economy such as the country's zealous over-investment and frugal consumers.
These two things, amongst others, have been blamed for China's unbalanced economy.
A growing consensus has been forged among policy-makers and scholars both in and outside China that the country's consumers must spend more, while the massive government sector must scale back its wasteful and inefficient spending.
However, economists from the Bank of International Settlements - the central bank of central banks - Guonan Ma, Robert McCauley and Lillie Lam have shed new light on the received wisdom in a recent research paper.
These economists acknowledge that China saves and invests at an exceptionally high rate even when compared with Asian neighbours' own long record of high saving and investment.
In 2010, China's saving rate reached a staggering 53 per cent of GDP, and some 48 per cent of the annual output was churned into investments of one kind or another.
It is assumed that such high rates would have discouraged consumer spending. The fact that private consumption as a proportion of China's GDP declined from about one half to a third between 1990 and 2010 is often used as proof.
But data also shows that private consumption has been growing at a strong pace of 8 per cent to 9 per cent a year for the last 20 years.
The spread of consumer durables such as TVs and refrigerators have increased tenfold.
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