China’s spectacular growth performance—an annual trend rate of growth of real GDP of just under 10 per
cent for slightly longer than the past quarter century—is primarily a reflection of the high investment rates
that have characterised the economy over this period. Capital formation as a share of GDP has been very
high by international standards, varying between 32 per cent and 44 per cent of GDP. The most recent data
indicate that the investment rate in China is above 45 per cent currently. These imply rates of domestic
savings which are exceptional by international standards, particularly for an economy at China’s level of per
capita income. Such high and rising rates of domestic savings in turn imply a suppression of domestic consumption
out of incremental income, which reflects a combination of the sheer rapidity of the growth itself,
as well as growing income inequalities, especially in the functional distribution of income.