Asia to the rescue

One version of how to save the world economy goes something like this. Banks are stabilised. Contracting private demand is met by lower interest rates and higher public spending. Then Asian consumers replace western shoppers, acting as bridges to a new prosperity.

Asia is a land of saving gluts: the flipside to US and European deficits. China’s current account surplus this year is forecast to reach almost 10 per cent of gross domestic product. The “manipulated” renminbi is one cause of this huge surplus. Asia’s less open capital accounts, younger populations and rudimentary social safety nets also help drive savings higher. Furthermore, the experience of the Asian financial crisis of 1997-8, when the region ran current account deficits with modest foreign reserves, spooked governments. Hence today’s near $4,000bn of reserves held by countries in the region, excluding Japan, Australia and New Zealand.