Investment-motivated saving is only one of the important factors behind China’s high household saving rate. Two other important factors are the low coverage of social insurance programs, and the demographic profile of the population. The absence of pensions and medical insurance for most of the population necessitates a higher saving rate to prepare for retirement, and health emergency. A large proportion of China’s labor force is now in the phase of the lifecycle to begin saving seriously in anticipation for retirement. The state policy of keeping the size of family small has reduced the number of dependent children, enabling the parents to save more.
An appreciation of the exchange rate should reduce CA by lowering the private saving rate because the rise in the purchasing power of domestic wealth would reduce the amount needed to be saved in order to make the required purchase. Investment spending could also increase because the decline in the price of imported capital goods would allow more investment projects to be implemented sooner. no checking account payday loans
The ability of import liberalization to reduce a CA surplus requires that: (a) it can to generate the same wealth effects as an appreciation of the currency; and/or (b) the resulting investment boom in the export sector and nontraded goods sector be greater than the collapse in investment in the import-competing sector ; and/or (c) saving to decline substantially because of previous intertemporal substitution, where consumers, in the past, had expected an eventual decline in the prices of imports, and postponed their consumption. The import liberalization would hence release the pent-up demand for imports.
The uncertainty over the efficacy of import liberalization to change the overall trade balance significantly in a sustained way can also be seen in terms of sectoral production. Import liberalization would reduce the importable sector, and increase imports; but the resulting flow of scarce resources (particularly capital) into the exportable sector would increase exports, and the final result may be an unchanged overall trade balance, particularly if the level of aggregate demand is kept constant.