Does China save too much?

Abstract

This paper, through simulating an open economy model of China, investigates whether the current rate of saving in China is excessive. The model incorporates the major factors that influence optimal saving, namely demographic change, the catch-up of total factor productivity in China to the level of high-income OECD countries, and an endogenous world rate of interest. The paper finds that the rate of time preference that would imply the current rate of saving is optimal is very low; in fact, it is negative. Thus, to justify China's current rate of saving, the social planner would have to put a higher weight on the economic welfare of future generations relative to the current generation, inde..