On 8th February 2013, Professor Douglas McWilliams delivered his 5th Gresham Professorship lecture. The outline is below, or please download the full transcript.

 

As recently as 1990, the Chinese saved $153 billion a year and accounted for less than 1% of the world’s savings. This year they will save $4.5 trillion and account for 25% of the world’s savings. The effects are dramatic. China’s massive savings mean that other countries are forced to run government deficits to balance demand. And this problem could get worse as the Chinese property boom runs out of steam.

 

Meanwhile, interest rates are depressed by the glut of savings. In the pre-2007 period this was reflected in investors taking on excessive risks to try to achieve nominal yield targets – why else would anyone buy a sub-prime mortgage bond, especially given that the clue was already given in the name….Now it is simply reflected in low investment returns which mean that most people will get a nasty surprise when they retire. That is, if they can actually afford to retire….Low investment yields mean that unless you save about a quarter of your income, you will either retire on a very low pension or will have to keep working.
The lecture looks at the implications of massive Chinese savings on the world economy – on the part they played in causing the financial crisis which is still not fully understood by regulators and at how to regulate financial institutions in the new world created by excess Chinese savings.
Remember, a country that does 25% of the world’s savings will ultimately own 25% of the world’s assets. This means that we should expect many of our own assets to become Chinese owned and probably sooner than we expect. What does this mean for us?

 

Download full transcript below.