Interesting Picture of the Day

What Are These Two Series?


Figure 1

The blue line is US gross private saving in billions of current USD. The red line is Chinese gross national saving in billions of USD.

I thought this was an interesting picture insofar as there is a common presumption that there was during the mid-2000′s a massive pool of saving in China, compared to that in the US. And I think a common view that Chinese saving continued to dwarf US saving. But in fact, during the period in which the “saving glut” hypothesis was being pushed, Chinese gross national saving was substantially smaller than US gross private saving. It would be nice to compare private to private, but I didn’t have access to that data. Using Eswar Prasad’s estimates, I estimated the values for 2000 and 2008, and present them below.


Figure 2: US gross private saving (blue) and PRC gross national saving (red) and gross private saving (maroon box). Sources: BEA, World Bank WDI, and author’s calculations.

So for me, the “Blame it on Beijing” meme still needs some more substantiation. I don’t doubt that some of the increase in the US current account deficit in ’03-07 was due to developments in China; but there were those little matters of yawning structural and actual budget deficits, expansionary monetary policy, and financial regulatory disarmament.

On the other hand, in effecting global rebalancing, it it clear that what happens in China is important — perhaps nearly as important as what happens in the US.

In terms of what’s happening in the US, it’s of interest to consider consumption and personal saving rates are evolving.


Figure 3: Log of real consumption of services and nondurables in Ch.2005$ (blue line, left axis); and personal saving rate (red line, right axis, in percentage points). Source: BEA, GDP 2nd release.

Log real nondurables and services consumption, which under the stochastic version of the permanent income hypothesis should react most strongly to expectations regarding the path of wealth, has flattened out. The personal (not private) saving rate has risen substantially. How easily rebalancing is effected will depend importantly upon these trends (see also [0] [1]).


23 thoughts on “Interesting Picture of the Day

  1. Robert Bell

    Hi Menzie. Unless I’m mistaken, your link to Eswar Prasad’s estimates seems to point back to this post.

  2. Movie Guy

    As you want to compare China to the U.S., what part of the following do you not understand?
    U.S. – China Trade Numbers Bottom Line
    2009 Report to Congress
    Report page 21
    U.S.-China Trade in Goods ($ billion), 20002008
    Year Imports Exports Balance
    2000 $100.0 $16.3 -$83.7
    2001 $102.3 $19.2 -$83.1
    2002 $125.2 $22.1 -$103.1
    2003 $152.4 $28.4 -$124.1
    2004 $196.7 $34.7 -$162.1
    2005 $243.5 $41.8 -$201.6
    2006 $287.8 $55.2 -$232.5
    2007 $321.5 $65.2 -$256.3
    2008 $337.8 $69.7 -$268.0

  3. Menzie Chinn

    Robert Bell: Thanks for catching that — the link is now fixed.

    Movie Guy: Both of these series were presented in graphical form here and here (although I cannot replicate the ratio for 2009 — are you sure you are not using US *goods* only deficit?). I suspect that as economic activity rebounds worldwide, the China share will decrease — not that the share matters much.

  4. Tom

    What’s important, though, is that so much of China’s savings was in dollars. That is directly related to the US deficits you mentioned, in the sense that Bush relied on China’s accumulation of Treasuries to fund his deficit spending, particularly on the conquest and occupation of Iraq.

  5. Cedric Regula

    Irregardless of what China is doing, I think the graph of US gross private saving rising nicely might give the impression things are rosier than they are. I believe US private savings sums corporate plus personal savings. At the beginning of the decade we had very high corporate debt. This was due to the IT boom, and over inventment in the telecom, internet and boom, so I think much of the increase in private saving this decade was due to corporations de-leveraging and cutting back on investment. We have been hearing the consumer didn’t do it that way.
    So if we are trying to figure out what is going to happen to China, whether China does something or not, it might be useful to plot corporate debt levels, ex banking system, and consumer credit levels instead of US private savings. Then plot consumer savings rate as kind of a leading indicator on the chart.
    That should scare the crap out of China. But I’m pretty sure their economists did that already.

  6. ReformerRay

    I do not believe the numbers reported above by the China-Trade Commission for the non-oil trade deficit. I do not have access to their data source. But I do have access to numbers for all goods as reported by the Census Bureau under “Highlights”.
    My calculations of the trade surplus China has with the U.S. is exactly the same as the above report for all goods in 2004 and it is slightly heigher for 2008 (286 versus 268 -My numbers for both imports and exports are higher – this is not a transposition error).
    Anyhow, when I canculate total trade deficit for the U.S. in 2004, I get -652. 162 divided by 652 is 24%, considerable less than the 35% reported by the Commission. Similar calculations for 2008 give me 36% for China rather than the 69% reported by the Commission.
    Of course, it is possible that removing oil from my calculations will provide the numbers reported by the Commission. But I don’t see how.
    If China provides 69% of the non-oil trade deficit in the U.S., that means that the non-oil trade deficit is 414 billion, 52 % of the total trade deficit of 800 billion reported by my numbers. I cannot believe that the oil trade deficit in the U.S. was 386 billion.
    If the oil trade deficit was anywhere near 386 billion, I would expect to see an oil exporting nation among the top 5 contributors to the U.S. trade deficit. Canada is one of the top 5 and it does send oil to the U.S. but Canada’s trade surplus with the U.S. (including oil and non-oil) is 12% of our total trade deficit (95 billion, much less than the hypothetical 386 billion oil trade deficit).
    Probably I have made a mistake somewhere but the numbers sound unreasonable to me. China’s part in creating a large trade deficit in the U.S. is large in 2008 (35%) and it grew from 25% in just 4 years. That gain is startling enough.

  7. Steve Kopits

    Actually, I think you make a great case for Blame it on Beijing. In 2002, China and the US had about $2 trillion in savings; by 2008, this quantity had doubled. That’s an awfully large increment to have to intermediate into the various capital markets.
    But I have to admit to being perplexed. If the US savings rate was about 2% in 2007, and GDP (> than DPI) was $14 trn, then that’s about $300 bn. So what’s the relevant number here?
    The question to be asking is: How much money was there available over time for private investment, for example, in housing, equities, debt and commodities? That’s the number that matters, because that’s the quantity available to drive housing bubbles.
    What are the trends currently? If both US and Chinese savings rates are high, does that take us quickly to bubble 3.0? Or does govt borrowing absorb it all? How does that work?
    Finally, I often get the feeling that Blame it on Beijing suggests a moral quality, that somehow, Beijing is doing something ‘bad’. The relationship is purely causal, like too much rain causing a flood. The outcome is ‘bad’, but there is no moral or ethical component. China’s ability to grow its economy and bring prosperity to hundreds of millions of people so quickly is no bad thing. Indeed, it is perhaps the singular achievement of modern civilization to date. China just has to be careful to remember that it’s now a big country on the margin, capable of moving global markets with its policies. That’s cause for prudence, but not guilt or shame.

  8. RicardoZ

    Thanks for the post. It is great information.
    But contrary to your post in January 2009 linked above, those in conservative circles have not excused the Bush administration arguing a glut in Chinese savings. Actually your graph is a much stronger attack against Alan Greenspan and Ben Bernanke who have both made this argument in defense of themselves, the strongest coming from Greenspan. See the excerpt from Greenspan’s Wall Street Journal Opinion below.
    OPINION MARCH 11, 2009
    The Fed Didn’t Cause the Housing Bubble
    Any new regulations should help direct savings toward productive investments.
    There are at least two broad and competing explanations of the origins of this crisis. The first is that the “easy money” policies of the Federal Reserve produced the U.S. housing bubble ….
    The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria.
    …As I noted on this page in December 2007, the presumptive cause of the world-wide decline in long-term rates was the tectonic shift in the early 1990s by much of the developing world from heavy emphasis on central planning to increasingly dynamic, export-led market competition. The result was a surge in growth in China and a large number of other emerging market economies that led to an excess of global intended savings relative to intended capital investment. That ex ante excess of savings propelled global long-term interest rates progressively lower between early 2000 and 2005.
    Your data actually proves Greenspan wrong on his second explanation, the one he used to excuse himself and the Federal Reserve. Our conclusion must be that with no Chinese savings glut the problem points right back to the Federal Reserve both through easy money and the related lowering of the interest rate, by Greenspan’s own admission.
    Bernanke has made this same assertion about Chinese savings and is equally wrong. It is interesting that you post this just the hearings of Bernanke’s reappointment is starting. I appreciate it because it once again demonstrates just how poor a FED Chairman he has been.

  9. Jim

    I’m not sure these graphs have a whole lot of meaning in isolation. The `blame it on Beijing’ thesis doesn’t just blame the Chinese, but all other countries with far higher savings rates than the US.
    Maybe you should graph, along with Chinese savings, the savings coming from the GCC countries, etc. They, after all, were happily buying US debt also—made easy by the fact their exports are denominated in USD.
    Another interesting graph would be of total US debt as a proportion of global debt, and total US savings as its global share. That would be more instructive.

  10. Mark

    Look at the change in the slope of that line from around the time that China was admitted to the WTO in 2001…Sure looks like a savings glut. On your chart it looks like Chinese savings goes from being a third of US savings to equal? That’s a huge increase…
    The only simple explanation for the rate at which China was able to accumulate reserves at the pace that they have seems to be that their currency is undervalued by a significant degree. It would be no different if China were to peg their currency to the price of gold at $2000 per oz, when the market price were $1000…Do you think that they would accumulate more gold reserves or less? More, much more. And the second that they decided not to hold the gold, their peg would disappear.
    Their savings has to be someone else’s investment…say a big helping of housing and a side order of Iraq war.

  11. tj

    Why is it wrong to place blame on a country that attracts huge flows of U.S. trade $ by fixing its FX rate and preventing their currency from appreciating to the point where we cannot afford so many Chinese goods?
    China gets an inflow of dollars from trade, and an inflow of dollars from selling yuan to buy dollars to prevent the yuan from appreciating.
    All those dollars have to go somewhere, so they end up fuding U.S. budget deficits.
    I doubt the FED could have maintained such low rates if market rates were higher in the absence of Chinese $ inflows.

  12. [email protected]

    Here they found cheaper interest rates through IRS
    The same in Europe (there it is better there are no records)
    Interest rates are set low and flows are TARP Primary dealers.The specialists of Co2 may find more co and no CO2 and plenty of bend regulations.
    No mention is made of hasting the leaning of banks contingent liabilities.
    No mention as well of the capital adequacy ratios.
    One victory the bonus of the traders have been addressed.This crisis is officially one year old.

  13. Buzzcut

    As usual, Menzie is getting into a p-ing match over words, and totally is missing the point.
    It is the rate of increase in the Chinese savings that caused the glut. Now, maybe glut is the wrong word to use. But that’s not really the crux of the argument, is it?
    “Regulatory disarmament”? How does that have anything to do with the balance of trade, dollar, etc.?

  14. kharris

    I agree with some of the other posts, along the lines that interpretation is in the eye of the beholder. That red line rises much faster than the blue line, and arrives at the same point as the blue line. What do we make of that? Without offering many intermediate steps, you decide we don’t blame China…for something or other. Um, OK let’s not blame China…for whatever that something or other is that you think we blame them for.
    However, a rapidly rising red line probably means something and we might want to look into what it means. China grew rapidly, so could save far more as time passed. China suppressed spending – still does – so that personal consumption is a smaller share of GDP now than earlier in the period in question. That biased China toward saving. China produces very few savings instruments. If savings rise faster than the stock of savings instruments, then Chinese savings will naturally end up elsewhere.
    All of which is to say, there is a lot more going on that just two lines arriving at the same point. It may, as you (Menzie) suggest, mean that there isn’t a big story here. It may mean that there is a big story here. Just knowing that two lines have come together does not, all by itself, tell us whether there is a big story or a little one.

  15. Movie Guy

    ReformerRay – “I do not believe the numbers reported above by the China-Trade Commission for the non-oil trade deficit. I do not have access to their data source. But I do have access to numbers for all goods as reported by the Census Bureau under “Highlights”.”
    Try performing some follow up. You have access if you pursue the authorship. Robert Scott, EPI, provided the information in an EPI document created on July 23, 2009. Scott cited the International Trade Commission and EPI as the sources for the data. His chart was cited in the 2009 USCC report.
    Report page 76
    Figure 1: Chinas Growing Share of the Overall U.S. Trade Deficit
    2000 to May 2009 (non-oil goods) 347
    347. Robert Scott, China dominates U.S. non-oil trade deficit in 2009 (Washington,
    DC: Economic Policy Institute, July 23, 2009).

  16. Menzie Chinn

    Buzzcut: Thank you for your comment. I’m not sure what you mean about p-ing match. This graph is a merely an observation. It is bringing some data to bear on a question. I have presented other data series in other posts.

    I thought there was some question over whether in fact capital was drawn into the US by implicit insurance, moral hazard, etc. vs. the push factor of RoW saving. Since you have previously commented on this thesis, I would’ve thought you were aware of this point. But if you need reminding, then I stand corrected, and refer you to this post.

    kharris and Jim: Yes, I fully agree — this graph is not by itself anything near a proof. It is merely an additional piece of information to add to the other posts I have on this subject (e.g., here).

  17. Buzzcut

    No, you’re right. This post isn’t a p-ing match. The last post was, the reaction to “The American Spectator”. This post is merely a continuation of that one.
    I’ll give this to you as well: at least you’re not just sitting back and listening to NPR. And you educated me. I didn’t even know that the Spectator was still in business.
    To the matter at hand… there are some really, really good comments here. How do we interpret that large increase in Chinese savings and its effect on the world economy, and the US in particular?
    Maybe it’s too easy to read things into that graph, but it certainly does seem like something changed in 1998. The time frame is right after the Asian financial crisis. What changes did China make in reaction to that crisis that would explain their savings rate switching over to a much faster growing track?
    Did they change their dollar peg at that time?

  18. Michael Pinto-Fernandes

    Hmmm, I think that it’s hard to compare savings between the U.S. and China. As you know the U.S. is a highly consumer oriented economy. Our consumers LOVE LOVE LOVE credit. On the other hand, the Chinese consumer is appalled at borrowing vast sums of money. I wonder when the Chinese will outgrow that culture, and of course, the subsequent shift in how their economy is structured.
    Also, Professor Chinn, a couple of students and I started journal (or blog, w/e you like) of economics and politics at my college. If you have time, would you read my piece, and leave your honest opinion? The link is

  19. Anonymous

    History is an interesting thing. I seem to remember that the Opium Wars with China was supposedly triggered by a growing trade deficit with that country and the west.
    Opium was the most obvious good that the west could sell to China in order to balance the trade.
    This seems to indicate that Chana has a history of seeking a trade surplus against its trade partners.
    It will be interesting to see how this will play out. I suspect that the “theory of excess Chinese savings” is one argument that will be used to justify any hypothetical future actions aimed at restoring the trade balance – Note: I’m not suggesting that we’ll go to physical war, but perhaps there might be a WTO finding that China has engaged in unfair trading practices, and that a import tax on Chinese goods would become appropriate under GATT…. Who knows.
    Anyway, it would be a Good Thing, if China would start importing more western goods, because this type of trade imbalance cannot go on, and “involuntary” corrections will be more hurtful for the world (China too) than if this issue could resolve itself.

  20. ReformerRay

    Mmovie Guy :
    I agree that China has made an amazing increase in the share of the U.S. goods trade deficit it creates or captures. My figures show a share of 25% in 2004; 36% in 2008 and 46% for the first 9 months of 2009. These numbers are derived from data reported by the Foreign Trade division of the Census Bureau in the section titled “Highlights”.
    The only information I can find from that source on the split between petroleum and non-petroleum for the Goods trade deficit does not break out countries. They show the real goods trade deficit for non-petrolem at 416 billion in 2008 with oil at 195 billion. You report the total China trade balance with the U.S. at 268 billion in 2008.
    Adding the two real numbers together (petro and non-petro) I get a total of 611 billion. The current dollar figure for total goods trade deficit in 2008 is 840 billion. I assume the current dollar value of the non-petro is 416 times 1.37 = 579 billion.
    If all of China’s 268 billion is non-oil, they will account for 268 divided by 579 or 46% of non-oil U.S. goods trade deficit in 2008, far from the 69% cited above.
    My logic is tortuous but I trust it more than data compiled by anyone that does not cite official Census or BEA figures. Inconsistencies are found even when working with official numbers. If I divide 268 by 840 (total goods trade deficit from the historical series) I get 32% as the China share in 2008k (less than the 36% share calculated from their data in Highlights). Whether 32% of 36%, China’s share of all imports is less than China’s share of a smaller number (non-oil) (46%).
    Whatever the best numbers, Movie Guy is correct in saying that manufactured goods from China is killing the U.S. manufactureing sector. Something should be done about it – tomorrow.

  21. Buzzcut

    Whatever the best numbers, Movie Guy is correct in saying that manufactured goods from China is killing the U.S. manufactureing sector. Something should be done about it – tomorrow.
    Just to be the devil’s advocate…
    Let them have it. Productivity being what it is, productivity growth being what it is, manufacturing sector employment is going the way of agricultural sector employment. And this is a worldwide phenomenon, not just an American one.
    So any manufacturing jobs that China captures are going to be temporary in nature. One day, Chinese workers will be much, much more productive, and there will be much fewer of them.

  22. ReformerRay

    Buzzcut -
    The state and local officials all over the U.S. that are willing to spend millions of scarce public funds to attract a manufacturing plant to their locality have another view of the importance of manufacturing activity.
    From one perspective, you are correct. Manufacturing share of value added of national output is still going down – from 14.5% in 2000 to 12% in 2006. But the gross dollars collected by manufacturing industries sales was 3 times as large as the value added in 2006. Manufacturing is critical to an idustrial economy because it absorbs so many inputs and provides 70 to 80 percent of the exports. The U.S. cannot cease trying to sell exports overseas.
    Germany has shown how to compete with China and Japan. Their exports were 47% of GDP in 2007, according to Pocket World of Figures, published by The Economists magazine

  23. Carlomagno

    Why would the absolute level of savings be of interest? It seems to me that what matters is the huge increase in Chinese savings during the current decade, which – as Mike Pettis has recently pointed out – is just the flip side of the decreasing share of consumption is Chinese GDP over the same period. The latter now stands at just 35% of GDP, which as Mike also points out is extremely low even by Asian standards.
    If you go back to BB’s savings glut speech, he makes this point up-front: “I will argue that over the past decade a combination of diverse forces has created a significant increase in the global supply of saving–a global saving glut–which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today.” So acording to BB the glut stems from an increase, ie the rate of change.

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