Excellent piece on the FT on the role of health care provision in China and the link with savings.
This problem has been clear for the last ten years. Chinese consumers will not save the global economy when the social security and health care provision is so poor. The Chinese need to save such a large percentage for education, old age and health care.
Improving health care will help but it is only one part of the jigsaw. I disagree that the savings problem is primarily health related. Education I would argue is far more important. A well employed son or daughter can then pay the health bills of the parents in later life.
China’s economy has turned the corner. Government banks have been lending at a rapid rate, factory output is rising again and the local stock market is blazing ahead. But just how quickly the world’s most populous country emerges from the global economic crisis will depend, in part, on places such as the cancer ward of Jingdong hospital in Sanhe, not far from Beijing, and how they treat patients like Cao Jun.
If the US economy stored up problems for itself through consuming too much, China has distorted its economy by saving too much and spending too little. In recent years, the savings rate has risen as high as 50 per cent of gross domestic product, including the retained earnings of state-owned companies, and even families with incomes of less than $200 a year still save 18 per cent of their income, according to the World Bank.
One of the main underlying causes is the weakness of the social safety net. Many Chinese put a large chunk of their wages into bank accounts because they are worried about pensions, education expenses and – most of all – the prospect of a big hospital bill if a family member falls seriously ill.
Originally published at the China Economics blog and reproduced here with the author’s permission.