22. 5 % in 2007. during the same time period, the share of government disposable income to the total increased by only 2 percentage points. the proportion of corporate savings to gdp in china is high compared with other countries in the world. this is closely related to the unsolved problem of cost / profit distortion of enterprises during china ’ s economic transition. under the planned economy, housing, healthcare, and pension were provided by the enterprises and the government, diminishing the incentives to save. savings were even considered “ mandatory ” as people queued up in the shops, but not being able to buy anything. after the reform of pension, housing and healthcare system in the 1990s, the “ iron bowl ” ( lifelong secure job and welfare ) system no longer existed and the enterprises stopped providing pension and housing for free. however, effective social security system had not been in place either. households had to pay for the long - term expenditures, significantly increasing the incentive for precautionary savings. on the other hand, the real cost of labor takes time to be reflected in the cost of the enterprises. as a result, the corporate sector increased their savings but decreased the contribution to social security. in other words, the extraordinary profits from cost distortion did not go to pension, healthcare and housing for employees, where it should go. this broadly explained the increase in household and corporate savings. this is also why some people suggested that part of the equities of state - owned listed companies should be designated to the social security fund. chart 2 despite china ’ s commitment and endeavor, the reforms in some areas are yet incomplete. although private enterprises in china are already market - driven and free of cost distortion, market reform of the public sector was not complete and further breakthrough is called for. considerable achievements have been made in the reform of soes. however, the lack of clearly - defined and fully monetized cost structure affect the adjustment of savings ratio. it is therefore important to expedite the reform of the public sector and the transition of the functions of the government. iv. observations of low household savings ratio in the u. s. movement of u. s. savings ratio in recent years went through two phases ( chart 3 ) : phase one, for a long time before the mid - 1990s, the us household savings ratio ranged between 7 - 10 % ; phase two, after 1997, savings ratio declined remarkably and the “ twin deficits ” worsened drastically, especially trade

zhou xiaochuan : some observations and analyses on savings ratio speech by dr zhou xiaochuan, governor of the people ’ s bank of china, at the high level conference hosted by the central bank of malaysia, kuala lumpur, 10 february 2009. * * * respected governor zeti, ladies and gentlemen, good morning! it is my great pleasure to attend this meeting, and i thank the colleagues at the bank negara malaysia for their hospitality and considerate arrangements. while the impact of the financial crisis is still unfolding and further analysis is called for, the current situation reminds us of the asian financial crisis ten years ago. it inflicted enormous impact on the east asian countries, including malaysia. during the crisis, malaysia, through a series of macroeconomic measures, maintained the stability of the ringgit, boosted market confidence and managed a quick recovery of the economy. in the decade thereafter, with increasingly adaptable monetary and exchange policies, the bank negara malaysia successfully phased out the temporary capital restrictions, and facilitated financial market development and economic growth. the bank negara malaysia celebrates its 50th anniversary this year. china and malaysia have a fair share of similarities. first, both countries are members of emeap and the bis asian consultative council ( acc ), and share valuable experience in working together. second, both are emerging market economies at similar stage of development. our governments and peoples weathered the 1997 asian financial crisis and managed to ride out the crisis after much adversity. third, in july 2005, our two countries launched significant reforms on the exchange rate formation mechanism and had much experience to share with each other. at present, many east asian countries, including china and malaysia, have high savings ratios and considerable foreign reserves. in this regard, there are a number of issues of common interest worth discussing. today, the global economy is once again put to the test. the distinct feature of the current crisis is that it originated in the advanced economies and spilled over to the rest of the world. there have been intense discussions with diverse opinions as to the causes of the current crisis. much concern has been shown to the high savings ratio in east asia and oil - producing countries and the low household savings ratio in the u. s. some believe that the high savings ratios in these countries are one of the major reasons behind global imbalance and the current crisis. at the same time, people are trying to find out which policy measures are effective in meaningfully influencing the savings ratio. attempts to pinpoint any