How Chinese savings can support the global green transition

TENSIONS are again rising in the global trading system, with China becoming the target of criticism from many sides. US Treasury Secretary Janet Yellen has urged market-oriented allies to present a “wall of opposition” to the country over its excess industrial capacity, which she argues is a result of generous state subsidies and other industrial policies. Similarly, European Commission President Ursula von der Leyen has called for action against Chinese “subsidised products”, from electric vehicles (EVs) to steel, that are “flooding the European market”.

The problem is that much of the bashing focuses on specific Chinese government actions, such as Chinese regulators’ recent demand that financial institutions increase credit to strategic industries, such as artificial intelligence, and green manufacturing. But these actions are aimed at treating the symptoms of a deeper challenge: excess Chinese savings.

China’s national savings rate remains stubbornly close to 45 per cent of gross domestic product (GDP), compared to about 26 per cent in the European Union and less than 17 per cent in the United States. For decades, these savings were channelled mostly towards real-estate and infrastructure investment, which long amounted to an estimated 25 to 30 per cent of GDP. But Chinese households have a per capita living area of over 41 square metres (about 441 square feet), as much as the average European, and China has a highly developed transport infrastructure, with more high-speed train lines than the rest of the world combined. Unless China wants yet more ghost cities and empty highways, a slowdown in construction spending is unavoidable.