Chapter 44

China’s Wealth, Income, and the Savings Rate: The Complete Markets Case


China is a net exporter and a fast-growing economy. Under normal circumstances, we would expect a fast-growing economy with a rising stock market, that is, our proxy for wealth, to experience a deterioration in the trade balance. Until recently, China had not. So, the question is whether China is the exception or not. Is our theory wrong or incomplete? In the next couple of sections, we provide a simple explanation that expands our views. We attribute the results to the lack of well-developed capital markets at the time. The implication is that as capital markets develop over time, the relationship among the different variables in China will approach those ...

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