Patient Capital, Long-Term Orientation and Global Imbalances: A Rebuttal
By Yan Wang
The global economy in early 2026 is confronted with an escalating war in the Middle East causing humanitarian disasters and energy crises. On the economic front, although there is a consensus that the global imbalance is widening, solid evidence for the root causes of this imbalance is lacking. The IMF’s 2025 Article IV consultation with China, completed in February 2026, notes that China’s economy remains resilient overall, but its current growth model is facing more pronounced internal and external imbalances. The IMF’s core recommendation is to push China toward a more consumption-led growth model, reducing inefficient over-investment and precautionary savings through structural reforms.
Although the above assessment is not without merits, the narrative fails to address the other side of the global imbalances, namely, the low savings rates and the extremely high fiscal deficits leading to rapid expansions of government debt in some G7 countries, especially the United States. Economists in China question the fairness in the IMF placing blames on China for global imbalances. For instance, 250 years of historical data provided by John Ross (2026) validates that China’s relatively high level of investment is not a sign of distortion or imbalance, but rather one of the main reasons the country has sustained rapid long-term growth.
There is an argument to be made that rebuttals the IMF’s critique of China’s high savings rate, by questioning whether it is desirable or realistic to reduce China’s persistent high savings rate, rooted in the Chinese culture of “long-term orientation” (LTO), which constitutes part of China’s soft power. From the perspective of financing gaps for green development and building a resilient future, is it a good idea to lower China’s savings rate? A friendly warning is: “do not throw the baby out with the bathwater.”
Patient Capital as a Comparative Advantage
Nine years ago, a paper pointed out that the IMF’s promotion of capital account liberalization is misleading. In fact, capital, just like labor, has never been homogeneous. Some capital is “patient capital,” while other capital is highly mobile, or “footloose”, that may leave a country at any time. Africa has been suffering from capital flight in the tens of billions of US dollars each year according to Ndikumana and Boyce 2011.
The proposed concept was “patient capital,” which is dependent on the LTO of a country or region, as well as the development of institutional investors in the banking and financial sector. Patient capital was broadly defined as capital to be invested in a relationship in which the benevolent lender is willing to see the borrower growing up in the future to enable decent returns. This includes parents investing in children’s education, state investment funds to innovative entities, and entrepreneurs investing in unlisted equity of infrastructure projects. These investments are not aimed at short-term returns but for long-term future returns when borrowers or invested projects scale-up. Owners of this patient capital are equity-like investors, who are more willing to and in a better position to take risks.
Previous studies have attributed LTO to the pre-industrial agro-climatic characteristics that were conducive to higher returns in agricultural investment. It is a form of cultural endowment because it is rooted in the thousand-year history of agricultural development and Confucius-cultural background that values persistence, perseverance, frugality, and the ability to adapt and learn. Long-term orientation has been widely considered as conducive to human and physical capital formation, technological advancement and economic growth. For instance, the growth commission report found that “future orientation is related to high levels and effectiveness of savings and public and private investment.”
LTOs and savings are not the same as patient capital. Household savings for retirement, parents saving for their children’s education, and residents building wealth for the future are all sources of long-term savings. However, high saving rates alone are not enough. Institutions are crucial to activate the latent comparative advantage of high savings. Only when a country develops financial institutions capable of providing long-term financing and acquiring low-cost and reliable savings as a source of funding can patient capital be realized. In other words, a country may have a long-term orientation and savings, which form a “latent comparative advantage.” But only when banks, pension funds, sovereign wealth funds, and development finance institutions operate effectively does this latent advantage turn into a revealed comparative advantage. Nevertheless, the hard truth is that many developing countries often perform poorly when they adopt strategies that run counter to their comparative advantage. These strategies can lead to an unviable business environment, fiscal burdens, inflation, financial repression, and external imbalances.
Long-Term Orientation and Net International Investment Positions
A key question, then, is which countries and regions have LTO and the ability to turn it into patient capital, and how it can be measured. Based on the work of Hofstede and his coauthors, and the obtained LTO index based on World Values Survey data collected by Misho Minkov (2007), Geert Hofstede and his coauthors, and published in the book entitled “Cultures and Organizations: Software of the Mind.” Another variable was also utilized––Net International Investment Position (NIIP)––as a proxy for a country’s patient capital invested abroad, albeit it is not a comprehensive measure due to its focus on financial assets and liabilities.
Figure 1: The relationship between net international investment position (as a % of GDP) and Long-term Orientation (LTO) ranking, 2020–2024
A rough correlation analysis shows that the average Net IIP in 2020-2024 is positively associated with the LTO index (as shown in Figure 1). That is, countries with stronger LTO, especially those East Asian economies, are more likely to form a stronger net external creditor position. This is consistent with the Growth Commission work (Spence 2008), and many East Asian economies including Japan, South Korea, Taiwan, Hong Kong, China, and Singapore, possess those similar characteristics of long-term orientation. The resulting hypothesis is that the NIIP of these economies may be higher than those without LTO. If this hypothesis can be further studied and corroborated by other evidence, such as Net FDI (outflows minus inflows) and cross-border M&A, we could consider that these economies have the revealed comparative advantage in patient capital as defined above.
On the other hand, countries with short-term orientation and low savings rates would see their Net IIP, or net foreign assets positions, deteriorating and their foreign liabilities. The US used to have highly positive NIIP in the early 1980s, but by 1990 it became the world’s largest debtor. By the end of Q3 2025, the US net debtor position had deteriorated to about USD $-27 trillion, with USD $41.27 trillion in assets and USD $68.89 trillion in liabilities. While there is an important caveat that there is sustained high foreign demand for USD-denominated financial assets, the US’s declining NIIP still means that it absorbs more global savings than it provides to the rest of the world. For many Global South countries that are in dire need of dollar financing, China’s recycling of trade surplus (roughly USD $1.2 trillion in 2025) through the Belt and Road Initiative and similar programs, offers an important source of long-term financing.
China Is Utilizing Its Comparative Advantage in Patient Capital
The IMF mainly offers recommendations from the perspective of rebalancing and expanding consumption, but this line of thinking pays little attention to the deeper cultural and institutional foundations behind China’s high savings rate. China’s high savings cannot be fully explained by the traditional determinant of precautionary saving and income factors but is deeply rooted in culture heritages of LTO, and institutional conditions for the creation of patient capital. The cultural explanation might seem slippery, but ultimately it is about how risk is perceived by individual households, as well as by society as a whole. In successive values surveys, China’s LTO index has consistently ranked near the top. It is precisely this LTO, together with institutional arrangements capable of transforming long-term savings into investment capacity, that has enabled China and some neighboring East Asian economies with a strong tradition of Confucianism to perform more strongly in infrastructure financing and long-term project investment, than countries with weak long-term orientation.
We believe that the NIIP can serve as important proxy for measuring a country’s capacity to export capital. A positive NIIP shows that a country has obtained a relatively strong net external asset position. By contrast, countries with stronger short-term orientation and lower savings rates are more likely to face a deterioration in their external position and an accumulation of large amount of external debt.
Figure 2: The relationship between net international investment position (as a % of GDP) and average gross savings (as a % of GDP), 2020–2024
As shown in Figure 2, the 2020–2024 data once again confirm that a high savings rate is highly correlated with a positive net international investment position, and this relationship is positive and statistically significant. Although China is still developing as a country, it has grown to be a major exporter of capital in recent years. This phenomenon, called “Lucas Paradox” (capital flowing from developing countries to developed countries), can be explained through LTO: China possesses a unique sense of patience proved through its achievements under China’s five-year plans, which is in its 15th edition since 1953. This patient capital can be utilized as a comparative advantage under certain institutional conditions, although further analysis is needed.
For China, rebalancing toward consumption may indeed be necessary, and establishing a more complete social security system may indeed help reduce excessive precautionary savings. In this process, however, the stronger capacity to patiently mobilize and invest long-term capital should be protected as a comparative advantage and a source of soft power.
This represents a strategic warning: policymakers should be cautious and avoid damaging the institutional conditions and cultural foundations that make patient capital possible. Given the huge financing gaps to bridge the digital divide, advance green development, and combat climate change, more international long-term investment is needed. This also feeds into a deeper discussion on global imbalances: the international community, including the IMF, should hold major powers to higher standards to build bridges and global public assets, rather than destroying or discarding what is truly valuable in the course of rebalancing.
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