June 6 (Bloomberg) -- In some Chinese hospitals, patients must wear stickers indicating how much they can pay to get well.

With the quality of treatment linked to the patient's financial means, unexpected illness is among the biggest reasons Chinese families are some of the world's most committed savers.

And it is China's frugality -- the savings rate has doubled in the past four decades to 50 percent of gross domestic product -- that's making it possible for the U.S. to overspend and run a record-high current account deficit, most of it with China.

Politicians in the U.S. blame China for manipulating its currency to gain an ``unfair'' export advantage.

They probably don't realize that a substantial part of the U.S. trade gap is actually being created in China's hospitals and schools, which act as limitations on what the Chinese are able to buy from the rest of the world.

The undervalued yuan and the associated Chinese obsession with creating manufacturing jobs in export industries are indeed part of the global current-account imbalance. The problem would be far less severe for everyone concerned if the force that has made China the world's workshop didn't also shackle the consumer in the most-populous nation.

This force is household savings.

The multinational companies in China have provided the technology, but the capital has been preponderantly Chinese. And a big chunk of it has been squirreled away by families that have, in the past 15 years, had no option except to be thrifty.

Government statistics cited by the China Daily newspaper indicate that 60 percent of China's health-care expenditure comes directly from patients. It wasn't always like this. In 1991, households bore less than 40 percent of the cost. The organs of the state, in particular the government-owned enterprises through which most public goods were provided, picked up the rest of the tab.

Social Responsibilities

According to economist Bai Chong-En at the University of Hong Kong and other researchers, the state-owned businesses ``paid workers low salaries but guaranteed their lifetime employment; they managed the pensions of the workers and also provided many other services to the workers, including health care and their children's education.''

Those days are over. As part of their ``reform,'' the state enterprises have been curtailing their social responsibilities. With no one filling the financing gap in health care, education and old-age security, there's an increasing propensity among workers to save.

Demographic forces also are a potent driver of China's high savings rate: The ratio of young and old dependents to the working-age population has fallen to 41 percent from 80 percent in 1965.

Favorable demographics are, however, only one part of the China story. A strong bias against consumption also exists.

Anti-Consumption Bias

The Chinese government's annual education spending is a paltry 3 percent of GDP, among the lowest in Asia.

Schools that are supposedly government-funded raise money from students through illegal levies, a Morgan Stanley research report said last week.

``The high cost of health and education adversely influences household behavior,'' the study said.

Among other factors, a meager return on savings -- banks pay 2.25 percent for a one-year deposit -- and the lack of modern pension systems exacerbate the tendency to postpone discretionary spending.

Another impetus to save is coming from surging home prices as billions of dollars of capital enters China, betting on sustained growth and currency appreciation.

In booming manufacturing centers such as Shenzhen in the south, residential property prices rose 35 percent from a year earlier in the first quarter. The same story is playing out throughout urban China.

`A Sense of Insecurity'

Rising property prices threaten to squeeze the urban poor out of the housing market.

After setting aside money for school fees and medical emergencies, these workers, many of whom are first-generation migrants from rural China, are saving to buy a marginal house one day, a dream that is threatened by escalating prices.

``A rise in property prices in a country where home ownership is still low can cause social tension and make people save more from a sense of insecurity,'' note Morgan Stanley economists Andy Xie and Chetan Ahya.

Chinese policy makers have recently announced steps to cool the property market by discouraging speculation and banning construction of luxury villas. Now they want to tilt the economy away from investment and toward consumption.

As a first step, the government will have to open its purse strings and spend.

Public Spending

Public provision of good-quality health care, education and housing has played a large role in Singapore's economic success and political stability over the past four decades.

China's challenge is bigger because of its sheer size and also because constrained Chinese consumption, to the extent it contributes to overspending in the U.S., is part of a dangerous global financial imbalance.

``Shifting government spending away from investment towards health, education, and social safety could help increase consumption's share in GDP, policies that would also help in redressing the surpluses on the current account,'' notes the World Bank's office in China.

Pending a reduction in China's trade surplus, protectionist fury in the West against the Chinese worker will only escalate, even though he's the victim of this story, not the villain.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column:
Andy Mukherjee in Singapore  amukherjee@bloomberg.net.