Rebalancing China's Economy: Domestic and International Implications

Abstract

This paper considers interactions between China's domestic and external imbalancesand their global implications. We present scenarios detailing how a rebalancing of China's growth pattern from investment-driven growth towards more consumption-driven growth may occur in practice. Using input-output tables for 2012, we illustrate the knife-edged nature of Chinese rebalancing, the linkages between expenditure-side and production-side rebalancing, and how an internal rebalancing could exacerbate external imbalances. A policy implication for China is that for rebalancing to be fast, consumption must be exceptionally resilient and the effi ciency of investment must increase sharply. If rebalancing is too slow, the capital-to-output ratio will rise to potentially unsustainable levels and consumption will fail to attain levels of contemporary upper middle-income economies by 2030. Global input-output tables (1995Global input-output tables ( -2011 suggest that the patterns of Chinese rebalancing considered in our scenarios may generate substantial headwinds for exports to China by its trading partners.

China's Crowding Out Effect on East Asian Exports: Gross Value and Domestic Value‐Added Analysis

“…More recently, authors have mentioned the rebalancing of China's growth pattern from relying on external market (export-driven) towards domestic market (consumption-driven) and its impact on other countries' exports (Lardy, 2016;Ma et al, 2017). Such transition in Chinese economy should ease the fear of crowding out for other countries.…”

Effects of China's Structural Change on the Exports of East Asian Economies

“…IMF, 2015). At last, China has begun to rebalance from investment-driven growth towards consumption-driven growth (for an overview, see Ma et al [2016] and Naughton [2016]). Structural rebalancing would impact China's long-term economic growth.…”

“…However, there have been very few studies on this important subject. Using input-output tables, Ma et al (2016) suggest that a rebalancing from investment-driven and export-driven growth towards more consumption-driven growth is likely to generate substantial headwinds for exports to China. Over time, adjusting to China's rebalancing, by exporting relatively more consumption goods to China, can mitigate the adverse short-run effect on exports.…”

“…What is often overlooked but may be equally significant is the impact of China's structural transformation on the exports of other countries. In this connection, Ma et al (2016) and Naughton (2016) present evidence that a rebalancing from a lopsided investment-driven and export-driven pattern of growth towards more consumptiondriven and domestic demand-driven growth is already under way in China. The structure of China's imports will change as the structure of China's economy evolves.…”

China’s economy growth prospects and its potential drivers of future

“…A study by Ma, G et al(2017) considers interactions between China's domestic and external imbalances and their global implications. Authors presented scenarios detailing how a rebalancing of China's growth pattern from investment-driven growth towards more consumption-driven growth may occur in practice.…”