China's central bank head sounds alarm bells on high savings rate

By Kim Young-gyo
HONG KONG, May 20 (Yonhap) -- China should keep close tabs on its high savings rate as it could result in increased investment and a subsequent economic overheating, the chief of the country's central bank said Friday.
China's savings rate has been on the increase over the past years on the back of its high economic growth. The average savings rate of urban households rose from 18 percent in 1995 to nearly 28 percent in 2009.
"China is an economy with a high savings rate, which may lead to higher investment," People's Bank of China Governor Zhou Xiaochuan said at a Shanghai forum, according to a statement released online.
"The higher investment may result in overheating and overcapacity, which in turn could create asset bubbles," Zhou said. "There are some good aspects in the higher rate of savings, but we must be alert to the cyclical problems that high savings cause."
Many critics have said that China's excessive savings can cause a credit bubble.
Abundant savings allow local Chinese banks to lend too much at a low interest rate, which could encourage investors to buy assets with high risks, they claimed.
The increased savings rate in China has been ascribed mainly to perceived political and financial instability among Chinese people.
ygkim@yna.co.kr