The truth is sometimes simple, however elaborate the detail. The main feature of the world economy over the past few years has been the growing savings surplus of China and other Asian countries. Until recently it was offset by consumer borrowing in the west, especially in the US and the UK. This had to come to an end because of unsustainable consumer debt ratios. There is no early prospect of this thrift being balanced either by an investment boom in the west or by investment in non-Chinese developing economies. Nor is China going to reduce its savings surplus on the scale required either directly or by appreciating the renminbi in response to international pleading. The hole in the world economy can only be filled by deficit spending by the stronger western governments. If this is inhibited by fiscal tightening, recovery will be strangled.
The best place to begin is the International Monetary Fund's current World Economic Outlook. One table shows savings rates in “emerging developing economies” rising far faster than domestic investment. The difference, known as “net lending”, rose from negative numbers at the end of the 20th century to a peak of 5.2 per cent of gross domestic product in 2006. The figure of 5.2 per cent of GDP may not seem much, but the countries concerned are estimated to account for nearly 45 per cent of world output or more than $30,000bn a year.
Of course, not all this lending surplus is due to China. Net lending by Middle Eastern countries – mostly oil producers – rose to a peak of over 21 per cent of GDP in 2006 only to fall back on IMF estimates to 3.5 per cent this year. Also contributing to world saving is Germany, where net lending rose from negligible amounts at the turn of the last century to a peak of 7.5 per cent of GDP in 2007. But for all its importance in Europe, Germany accounts for just 4 per cent of world GDP compared with the Chinese 11 per cent.