Chinese Savers in a Currency Debasement Framework


On more than one occasion, we have explained that compared to Western savers (who have flaws of their own, of course), Chinese savers are let’s say less sophisticated for a wide range of reasons. Before continuing with this article, it therefore makes sense to enumerate the most important reasons and take it from there. Please note that this list by no means intends to be definitive, think of it as merely a starting point:

  1. The fact that China’s education system is still far from optimal, despite the fact that impressive progress has been made. In many regions of China, there are still issues with basic literacy and as such, expecting the average Chinese saver to properly understand today’s ultra-complex realities would be unrealistic. For more information about China’s education system and how it compares to various Western counterparts, we would recommend reading the article we have dedicated to this topic by clicking HERE
  2. The fact that various dimensions of China’s financial system tend to have an above-average percentage involvement of so-called “retail” investors compared to professionals, with the Chinese stock market being a relevant example in that direction. Once again, we have dedicated an entire article to this topic, one which can be found HERE
  3. The fact that the average Chinese citizen doesn’t exactly have as much access to let’s call it “less than curated” investment information. Say what you will about Western financial media outlets but compared to the information level of the average Chinese investor, Westerners seem light years ahead. While it is true that gaining access to the “real” Web by for example bypassing the Great Chinese Firewall is hardly impossible, it is fairly safe to assume that Chinese savers are at a disadvantage compared to their Western counterparts
  4. The fact that from a cultural perspective, there is hardly anything in the way of tradition that has been reinforced historically speaking. To put it differently, older generations have been far too “busy” with subsistence to care all that much about being wise savers, with them hardly having enough wealth at their disposal for dedicating a lot of time to such endeavors to make sense

The list could continue indefinitely but the bottom line is this: Chinese savers can, at this point in time at least, be considered at a disadvantage compared to their Western counterparts. However, make no mistake, this most definitely does not mean that Western savers have it easy. On the contrary, as discussed in other articles as well, savers in general have been systematically punished all over the world due to “paradox of thrift” implications: simply put, the worldwide economic system needs perpetual debt-fueled consumerism to sustain itself and savers stand in the way. This, however, is a topic that goes beyond the scope of our article.

Suffice it to say that the current status quo revolves around governments and central banks from all over the world (with China not representing an exception) engaging in currency debasement one can consider unprecedented in terms of sheer contagion (to use a term more and more common in 2020). To put it differently, one cannot exactly seek refuge in Country B’s currency if Country A is in full-on debasement mode for the simple reason that the Country B’s of the world are engaging in precisely the same behavior. As such, even for sophisticated savers, protecting their purchasing power at the very least and especially enhancing their wealth becomes a problematic goal, with many of them feeling as if they have absolutely nowhere to hide.

Fortunately, this is not true. In fact, we have dedicated a fair number of article to explaining, from A to Z, what savers from all over the world can and should do to protect themselves, with many more articles on the way. Unfortunately, doing so is anything but easy and from the perspective of an unsophisticated Chinese saver who is looking for a “quick fix” solution, the entire equation seems unbelievably confusing.

The end result is therefore likely to involve an extremely large transfer of wealth from those who are not properly prepared/hedged to those who are. Historically speaking, the average citizen is usually on the losing end of such transfers of wealth and the less sophisticated they are, the more affected they are likely to be.

The implications of this reality should be more than obvious: the fact that the proverbial Chinese dream may end up being under siege. Long gone are the pre-2010 days of what seemed to be sustainable double-digit GDP growth, with straightforward international trade dynamics and much-needed domestic infrastructure spending. Fast-forward to the 2020 framework and we have even the Communist Party of China admitting that double-digit growth represents an unrealistic goal, major trade tensions between China and many trading partners that are so frustrated with the trade deficits their countries keep experiencing that they consider China the spoiled child of globalization and infrastructure-driven growth which can only take you so far… an amazingly complicated equation.

To state that the average Chinese saver feels overwhelmed would be a severe understatement and if history is to be any indicator, more or less obvious forms of civil unrest become pretty much unavoidable. As it was, many citizens were frustrated with the various inequality problems that sprung up in the aftermath of China’s economic growth story and while more recent administrations such as the Hu Jintao and nowadays Xi Jinping ones have done more than past administrations to tackle this issue, it becomes abundantly clear that innovative solutions are required in order to preserve the “socialism with Chinese characteristics” status quo. Because, make no mistake, a hefty price will need to be paid if the average Chinese saver becomes discontent with the status quo in a manner that leads to frustrations piling up, one the current Chinese administration can most likely not afford, especially given the “tricky” international context that dominates public discourse pretty much all over the world.

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