The reason for China’s paradox of thrift? As the song goes, ‘Life used to be so hard.’

(Originally published Sept. 1 in “What in the World“) Foreign investors sold a net 90 billion yuan ($12.4 billion) of Chinese stocks in August over the Shanghai-Hong Kong Connect. That’s the highest net sales flow since the two exchanges opened their link allowing investors to trade Shanghai-listed stocks from Hong Kong.

The foreign exodus comes as China continues to post a drumbeat of poor economic indicators. The latest was the official purchasing managers index, which showed factory activity contracting in August for a fifth straight month.

The litany of negative news about China prompted Nobel-prize winning economist and New York Times columnist Paul Krugman to wade in yet again about a country he repeatedly confesses he knows little about. This time, Krugman engages in the very “amateur sociology” he worries about (quoting MIT economist Andrew Solow) to ponder why China’s consumers aren’t spending right now and linking that to China’s perennially high savings rate.

Krugman cites a 2018 IMF study that pointed to China’s inadequate social safety net and aging population as reasons for Chinese thrift. Of course, the immediate reason people are saving is that the outlook is dim and so people can sense that a rainy day is nigh, despite what Beijing might be telling them.

What Krugman and the study’s authors may have forgotten is that China encouraged a high savings rate for decades by keeping the capital account closed and pegging the currency at an artificially low rate that was a constant source of tension with its trade partners in the U.S. and Europe. That kept consumers from enjoying the benefits of a rising trade surplus, suppressing their still-impressive gains in income, so that China could channel those saved export earnings into further investment in the country’s development.

Sound familiar? It should. It’s the same “capitalist developmental state” model that Japan and then South Korea used to turn their own war-ravaged economies into some of the world’s richest and most developed nations. Save and invest until you’re rich, then you can spend. Japan used a weak yen and favorable tax rates to keep its workers plugging their salaries into savings accounts rather than spend them, thus keeping real interest rates low for industries to borrow and invest in expanding at the direction of the mighty Ministry of International Trade and Industry.

It helps that Asia’s postwar generation learned thrift the hard way, from having to survive the tribulations of war and its aftermath. World War II, the Korean War and then the Vietnam War reinforced cultures of saving already forged by generations of surviving East Asia’s periodic earthquakes, typhoons, volcanic eruptions, political uprisings, and European colonialism.

It was therefore relatively easy for a succession of Asian governments to cultivate savings-fueled investment as a development model. And one of the most seductive forms of savings in Asia remains property. Governments from Tokyo to Beijing and Singapore have incentivized property investment as a way to ensure that personal incomes get sunk back into the domestic financial system. And in every case, it has resulted in dangerous property bubbles.

Once the habit of savings has been instilled, it is very difficult to break.