Savings trigger bubble worries

May 21, 2011 |

Shanghai

The head of China’s Central Bank said on Friday too many people were saving too much money, which could lead to asset bubbles, adding Beijing had to find a way to promote growth and curb inflation.

China’s national savings rate is one of the highest in the world, standing at about 50 per cent of the GDP in 2010 — much higher than developed economies. “China is an economy with a high savings rate, which may lead to high investments and may cause overheating and overcapacity in some sectors and fuel bubbles,” Mr Zhou Xiaochuan, governor of the People’s Bank of China, said.

“A high savings rate has good aspects, but at the same time there are other aspects we must be vigilant about,” he said. Chinese households typically keep more than one-fifth of their disposable income in deposits, as they maintain frugal habits and worry over housing, health and education costs in a nation that has poor social welfare. Mr Zhou said the outlook for the economic recovery was clearer now than the last year, but many uncertainties remained. He added that China needed to take “counter-cycle” policies as its economic cycle was different from that of developed nations.

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