This article appears in Academic Monthly, No. 12, 2023.

Author: Wu Jianjun is a professor at China Investment Research Center, Zhongnan University of Economics and Law.

Abstract: The application of micro-thinking to analyze macroeconomic phenomena is a common mistake in economic research. Classical literature holds that the causal relationship between the savings rate and the consumption rate of an economy is a prominent manifestation of this mistake. Starting from the connotation and source of savings, although savings rate and consumption rate rise and fall, they do not form a causal relationship, both of which are determined by the production structure. Based on the production process from the perspective of financing, contrary to the understanding of mainstream economics that savings determines investment, savings is the result rather than the cause of investment. Combined with the practice of economic operation, China's high savings rate is the result of excessive investment scale and high proportion of capital goods output in GDP under the extensive economic growth model. In the context of high-quality development, China's economic growth will shift from investment driven to technological innovation driven, investment rate and savings rate will tend to decline, but the production structure will be further optimized, thus promoting the improvement of consumption level and consumption quality.