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China can’t reduce savings rate quickly: central bank chief

China’s sky-high savings rate is a function of deep-rooted social and cultural factors that cannot be addressed overnight by economic policies, Zhou Xiaochuan, the governor of the People’s Bank of China, said at a central bank conference in Kuala Lumpur.

Zhou acknowledged that China’s domestic savings rate -- 49.9 percent of gross domestic product at end-2007 -- was too high.

But he said it would take a long time to reduce it.

‘If we need to change some policies, it may be a slow process, especially when you want to change national traditions, cultural impacts, family structures and demographics,’ Zhou said.

Washington in particular has long urged China to help restore balance to the global economy by taking steps to reduce savings.

Because China does not have a sturdy social safety net, households save about 30 percent of their disposable incomes to meet out-of-pocket medical and education bills and other expenses.

Household consumption has fallen steadily in recent years and accounted for just 35.3 percent of gross domestic product in 2007, a record low for a major economy in peacetime.

‘For China to have meaningful growth in the future, they have to address this problem. They have to have a sense of urgency,’ Frank Gong, chief China economist at J.P. Morgan, said.

Corporate savings have also ballooned since state-owned firms were largely relieved a decade ago of their obligation to provide cradle-to-grave welfare. State-run companies also pay minimal dividends to the central government.

SLOW SHIFT

Premier Wen Jiabao recently rejected as ridiculous the idea that countries like China with low savings rates should be blamed for the economic imbalances at the root of the global malaise.

But China has been steadily introducing measures to promote consumption. It has extended nationwide a pilot programme that gives farmers a discount when they buy electrical appliances.

The government has approved spending 850 billion yuan over the next three years to ensure basic health care coverage, and the Commerce Ministry said on Monday it hopes to create 450,000 jobs this year by providing incentives to open rural stores.

Gong at J.P. Morgan said China should consider a range of short-term steps to boost consumption, from cutting income taxes to issuing shoping vouchers. Having devoted much of its original 4 trillion yuan stimulus package to infrastructure investment, he said the government should shift its focus exclusively to encouraging consumption in any future stimulus spending.

Zhou said China had also been trying to reduce domestic savings by adjusting exchange and interest rates and by developing its financial markets.

But he said it was not realistic to expect immediate results.

Zhou cited the landmark shift to its exchange rate regime in July 2005, when China abandoned a long-standing peg to the dollar and said the yuan would be allowed to float within managed bands.

‘We tried to lower excessively high expectations that the exchange rate regime reform would solve these problems,’ he said.

With China saving more than it can invest, it ran a current account surplus that exceeded 7 percent of GDP last year.

The bulk of those excess savings are recycled into US Treasury bonds and other dollar assets, mainly by the central bank, but Zhou said China needed to look at putting some of its money elsewhere.

‘Shouldn’t China consider sending its savings to those places like Africa rather than concentrating too much on the United States?’ Zhou said without offering a timeframe or specifics.

He was speaking as President Hu Jintao left Beijing on a week-long visit to Saudi Arabia and Africa.