- Blog Post
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I think the tax data rather reinforces the argument that Louis Kuijs and Bert Hofman of the World Bank’s Beijing office have been making about how rising corporate savings have been the key driver of the overall rise in China's national savings. Martin Wolf – citing Jon Anderson of UBS – has made a similar point.
Overall tax revenues grew by something like 20% y/y -- so spending also needed to grow by 20% y/y to keep China’s fiscal balance constant. I rather suspect that spending didn’t grow at that rate, which implies that a falling fiscal deficit and rising government savings contributed to China’s rapid savings growth as well.
The FT article notes that investment growth slowed in the second half of 2006. That also wasn’t an accident: the government clamped down on lending growth.
It all seems quite with another of Dr. Wolf’s key arguments – China has had to take policy actions to raise savings and reduce investment in order to keep its economy from overheating, given the strong stimulus provided by the rapid growth of its exports. And in the process, Chinese policy has in effect created is savings surplus. The causality though goes from the fall in China’s nominal exchange rate to a surge in exports to a policy-induced rise in savings relative to investment – with the rise in savings relative to investment necessary to prevent inflation from leading to a real appreciation.
And if corporate tax revenues are a good proxy for corporate profitability, it isn’t hard to figure out who the big winners from the most recent round of globalization have been. I don’t think wages (or compensation) are growing by 30% y/y in China or 20% plus y/y in the US … Judging from the tax data, profits are rising as a share of national income in both China and the US.