A link between China’s multibillion-dollar obsession with spectacular wedding ceremonies and the path of Britain’s interest rate policy is not immediately obvious. But look east and it is possible to see how nuptials in Shanghai are going to keep UK interest rates low for a decade or more.
China’s savings rate has jumped from about 16% of disposable income in 1990 to over 30% in the last few years. According to Shang-Jin Wei, a professor of Chinese business and economy at Columbia Business School, about half of this rush to accumulate can be attributed to the rise in the number of boy births versus girls, and the consequent need for young men to throw ever more extravagant weddings to attract a wife.
There is also a link between the UK’s cost of credit and China’s steeply rising housing costs.
Buying a wedding and buying a home are the two biggest costs faced by young Chinese. When there are in excess of 10m weddings a year at an average cost of $16,000 (£10,000), and mortgages need to be supplemented by deposits of 50% or more, it amounts to a stratospheric sum. Importantly for the west, it encourages huge savings that must be invested somewhere.
It is not just China’s young people who have acquired a massive savings habit. Middle-aged Chinese people must save to cope with spiralling health costs, most of which are provided privately, while the wealthy choose to get their money out of the country and into western banks to protect their savings and avoid tax.
Asian savings were highlighted last week by the Bank of England deputy governor, Ben Broadbent, as one of the biggest factors driving down short- and long-term interest rates. He might also have pointed the finger at oil-rich nations, which have charged unprecedented sums for oil over the last decade, and stuffing much of the profit into vast savings vehicles.
Various estimates put the total global savings glut in excess of $60tn with around $30tn in pension funds and a further $30tn locked up in the sovereign wealth funds of China, Singapore and states in the Middle East.