The quick buck economy

Thirty years ago this month, I was a graduate student at the People's Bank of China in Beijing. The average monthly wage on the mainland was about 40 yuan at that time. I was lucky to be paid 52 yuan. But my money would always run out before the next pay cheque arrived.

Fei Yun, my mentor then, was 10 years my senior and in my same class. He taught me how to save at least 15 yuan each month.

Embarrassed and grateful, I have since taken Fei's teachings to heart. However, older and arguably wiser, I have recently turned down several invitations to advise young entrants into the labour force about ways to manage their personal finances and build nest eggs - mainly because I have nothing useful to say.

Saving for a rainy day is a big part of Chinese culture, but that culture, as well as the country's social fabric, is under attack from all quarters, including assaults resulting from the country's misguided monetary policies of the past three decades.

An ordinary civil servant or a factory worker on the mainland might have faithfully saved a fifth of his honest income each year for 30 years. But if he had not borrowed heavily to buy an apartment some years ago, he can forget that idea altogether these days as real estate prices have shot up beyond his wildest dreams.

In the meantime, the purchasing power of his savings has evaporated as consumer price inflation of 5 to 10 per cent a year has consistently run faster than the interest rates of bank deposits, which currently stand at around 1 to 3 per cent. Rentals and housing prices have risen still faster, but they are not in the official statistics on inflation.

In the late 1980s and early '90s, when inflation got out of control, the mainland introduced an "inflation subsidy" to compensate savers. But the subsidy, which amounted to as much as 10 percentage points on top of base rates on deposits, contributed to the crippling of the banks and that led to a wholesale recapitalisation of the banking sector from 2000 to 2002.