Savings Glut Not Addressed by RMB Appreciation, Says PBoC Governor

China is working on lowering its huge saving ratio by expanding internal demand, especially domestic consumption, but the government rejects trying to solve the savings glut by RMB appreciation.

China is continuing to resist ongoing pressure from the US and Europe to push the RMB to appreciate further, but is also trying to ease the world’s worry over possible RMB depreciation.

Zhou Xiaochuan, governor of the People’s Bank of China, China’s central bank, said at a senior forum of central bankers in Malaysia that the deposit ratio cannot be lifted or lowered simply by adjustment of nominal exchange rates as it was related to many other factors, some of which, such as tradition, cultural characteristics, family structure, population, and social security system, cannot be altered over the short term.

As for China’s high deposit ratio, Zhou Xiao Chuan emphasized that China has yet to establish an effect social security system, forcing prudent residents to keep more money on deposit for various long-term disbursements. On the other hand, companies�deposits are also increasing, and high profits haven’t been effectively transformed into workers�pensions, medical payments, and insurance.

Some developed countries, such as the US, have in recent years maintained a low deposit ratio, even borrowing money from developing countries with high deposit ratios. How to solve the global imbalance? Zhou Xiaochuan offered a resolution, according to which the US needs to reach balance between increasing deposits, stimulating consumption, and restoring economic growth, as a recession is not a good time to boost deposits, while Eastern Asian countries should lower deposit ratios with comprehensive adjustments and reforms, especially those involving economic growth, industrial structure, and pricing systems, and try to achieve goals in the medium term. "Of course, reform of the exchange rate generation system is also a part of this."

According to Zhou Xiaochuan, developed economies such as the US are not happy to see higher savings rates in foreign countries as the money could be put to better use. And those deposits then flowing into developed countries does not help those countries bolster their own savings rates. The deposit ratio of East Asian countries is not going to come down any time soon, and neither will that of the oil producing countries. 

"The global deposit imbalance will continue into the near future. This is a fact. Now the main problem is how to promote reasonable deposit flow and how to increase efficiency of global allocation."

Zhou Xiaochuan said China may invest more of its deposit surplus in other developing countries and emerging markets because these economies, rich in resources and low cost labor while short of funds necessary for their development, will see high growth in future.