For decades, its citizens socked away much more of their incomes than Americans do. The pool of capital that was created powered China’s economic rise.
Banks used their bulging deposits to fund factories and roads. The government became a key global creditor, bankrolling infrastructure overseas and buying up more than $1 trillion in U.S. Treasury bonds.
The savings also fueled tensions with other countries. Western leaders said China was discouraging spending to tilt the global economy in its favor.
Now, 40 years into the greatest accumulation of money the world has ever seen, the pattern is reversing. The impact will be felt world-wide, in ways good and bad.
Behind the change: Chinese citizens are saving less and borrowing more as they reach middle-income levels.
While Chinese families still sock away more than Americans—about five times more income—their overall savings rate is declining.
After peaking in 2010, China’s savings rate has fallen in six of the past eight years. It is forecast to fall more.
China’s savings are also increasingly offset by soaring personal debt—something that wasn’t nearly as true a decade ago—as China’s freshly minted middle class borrows, American-style, to afford new cars and international travel.
For every dollar of gross domestic product generated in China last year, its households owed 54 cents, according to the International Monetary Fund. Households will owe 68 cents per dollar of GDP by 2024. U.S. consumer debt is 78 cents per dollar.
Household debt has surged in China, while it has backed off in the U.S.
A tail-off in savings was bound to happen as China grew richer and its economic boom ebbed. This shift toward saving less and spending more could help correct imbalances in the global economy that built up in years when Americans did much of the world’s buying, and China did much of its saving and lending. Consumer spending creates new growth momentum for China, and some foreign companies.
China says consumer spending is a sustainable economic driver, but it has a way to go to catch up to U.S. levels. Household expenditure, as a percent of GDP.
But it also means China will have less firepower to buy U.S. Treasurys, which helped keep U.S. interest rates low, and to use its savings to peddle influence abroad through programs like its Belt and Road development initiative.
It will also translate into less financial flexibility for Beijing—and Chinese households—as the country grapples with a slowing economy. With their financial cushions shrinking, Chinese families may find it harder to navigate losses from the U.S.-China trade war on top of the looming costs of a shrinking workforce and fast-aging population.
Many people fear China will grow old before it grows rich—and without enough savings.