Asian crisis, culture sparked imbalances: Zhou

The Asian financial crisis and a number of cultural factors triggered the build up in global imbalances seen as the underlying cause of the current crisis, Zhou Xiaochuan, the governor of the People's Bank of China, has said.

The governor also acknowledged that China needed to cut its savings ratio but said doing so would take time.

Speaking at Bank Negara Malaysia's High Level Conference in Kuala Lumpur, Zhou suggested to an audience of central bankers from about 50 countries that the massive capital outflows and currency depreciation that accompanied the Asian financial crisis, coupled with a variety of cultural and socio-economic factors had led to the savings ratios of east Asian economies rising since the late 1990s.

"The trend shows that the changes in imbalances started from the Asian financial crisis," Zhou said. "The Asian crisis had a big impact. It was very painful for the Asian economy. It was not a surprise to see exchange rates to Asian currencies going higher and higher. It also impacted public sentiment towards capital inflows and outflows. Asian nations paid a high price to recover."

He added: "Meanwhile it was also the prescription of the IMF to raise the rate of interest and narrow fiscal deficits."

Zhou pointed to factors such as Confucius's promotion of thrift, differences in cultural education, the greater responsibility towards family members in Asia, demographic trends and economic policy. He also said that a nation's propensity to save depended on the strength of social security.

The governor noted that China needed to make an adjustment to its savings rate in the long run. However, he said that this could not happen immediately.

He provided scant indication of how China would achieve this, other than to say: "We will depend on several remedies rather than a single medicine. The Chinese doctor always puts ten to 20 herbs together to formulate the prescription."