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China's Consumption Dilemma

Saving for a rainy day
Saving for a rainy day


BEIJING – At the recent International Investment Forum, Justin Lin Yifu, the former World Bank chief economist, was asked how he personally invested his money. “All my money is in the bank, in fixed deposits,” he said, before adding with a smile, “When I sleep at night, they are still earning interest for me, so I don’t have to worry.”

For an academic who “concentrates all (his) energy on doing research,” this is Lin’s best option. But in China, he is hardly alone. According to data published by the People’s Bank of China, last month Chinese saving balances surpassed 43 trillion RMB ($7 trillion). According to a Xinhua News report, China is No. 1 globally both in terms of total and per capita savings.

More than half of the wealth of Chinese households exists in the form of savings. The Chinese obsession with banks is based on citizens’ deep-rooted faith in the government. This is also the only way China has known how to drive its economy, and Lin apparently believes that investment is the major force behind China's economic growth. It would then follow that China has to maintain its relatively high savings rate to be able to stimulate investment.

But there are many reasons to doubt that this is indeed the best possible choice. There are traditional reasons why Chinese people like to save. But when they decide to leave their money in the banks, it is often simply a result of their individual anxiety.

A few years ago, when China faced extremely high inflation, and the country experienced up to 24 months of declining interest rates, people watched the real value of their money dry up. The government has now decided to guarantee that Chinese banks won’t go bankrupt. But when the deposit insurance scheme is launched, safeguarding even banks with looming debt-risks, all those Chinese savers will have even fewer reasons to sleep soundly.

So if not the bank, where?

Over the years, government policy documents have called for efforts to increase income for Chinese citizens, but that is ultimately limited because of a lack of diversified investment options. Apart from the risks and pitfalls of financial markets, the housing purchase restrictions and the recent stock market downturn have made people unsure of what to do. And in the end, people feel little choice but to return to the banks. According to the Central Bank’s urban resident savers survey conducted for the second quarter this year, 46.2% of citizens intend to save more while only 18.1% intend to consume more.

Even the Chinese government feels helpless. People’s savings have always been considered the caged tiger. After the 1998 Asian financial crisis, “Drive out the caged tigerbecame an oft repeated slogan. Amid the 2008 crisis, promoting Chinese consumption growth was also the preferred path for rescuing the economy. Alas, this caged tiger has continued to get fatter and fatter, turning round and round in the cage without being able to demonstrate its strength.

In 1998, analysis of why Chinese wouldn’t release their savings concluded that it’s because people are worried by the “three big mountains” — education, health care and old-age pensions. Today, we can add to that the pressure of rising real estate prices.

More savings means less anxiety – in simple terms, that's how most Chinese people feel. Whether in 1998 or in 2008, expanding domestic demand should have meant more consumption. But both times, expanding domestic demand has always eventually evolved into the singular quest to invest and save as much as possible.

The Chinese government thinks it has the answers. It has chosen not to stimulate the economy and not to announce large-scale investment projects. But this is still not enough to push people toward consumption. Instead, the most important thing the Chinese government can do now is ensure that people don’t have to worry about their health care, their children’s education, their retirement and their housing. Then maybe they would start to spend and consume and stimulate rather than stay seated permanently on their savings.

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FOCUS: Russia-Ukraine War

Why Poland's Break With Ukraine Weakens All Enemies Of Russia — Starting With Poland

Poland’s decision to stop sending weapons to Ukraine is being driven by the ruling Law and Justice (PiS) party's short-term electoral calculus. Yet the long-term effects on the world stage could deeply undermine the united NATO front against Russia, and the entire Western coalition.

Photo of ​Ukrainian President Volodymyr Zelensky with Polish President Andrzej Duda in Lutsk, Ukraine, on July 9

Ukrainian President Volodymyr Zelensky with Polish President Andrzej Duda in Lutsk, Ukraine, on July 9

Bartosz T. Wieliński


WARSAW — Poland has now moved from being the country that was most loudly demanding that arms be sent to Ukraine, to a country that has suddenly announced it was withholding military aid. Even if Poland's actions won't match Prime Minister Mateusz Morawiecki’s words, the government has damaged the standing of our country in the region, and in NATO.

“We are no longer providing arms to Ukraine, because we are now arming Poland,” the prime minister declared on Polsat news on Wednesday evening. He didn’t specify which type of arms he was referring to, but his statement was quickly spread on social media by leading figures of the ruling Law and Justice (PiS) party.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

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When news that Poland would be withholding arms to Ukraine made their way to the headlines of the most important international media outlets, no politician from PiS stepped in to refute the prime minister’s statement. Which means that Morawiecki said exactly what he meant to say.

The era of tight Polish-Ukrainian collaboration, militarily and politically, has thus come to an end.

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