Journal Article

Rebalancing the Chinese economy

Yu Yongding

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 28, issue 3, pages 551-568
Published in print January 2012 | ISSN: 0266-903X
Published online September 2012 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grs025
Rebalancing the Chinese economy

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  • Macroeconomic Aspects of International Trade and Finance
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China has run a current account surplus for two decades. Its current account surplus is not simply a result of the saving gap. Rather, the current account surplus, as well as the saving gap, is a result of complicated interaction among various factors in a dynamic fashion. While running a large current account surplus, China has also run a large capital account surplus mainly in the form of FDI over decades. China’s ‘twin surpluses’ are a reflection of market distortion, which has caused large welfare losses for the country. The Chinese government should not only pay attention to internal balance but also to external imbalance. Hence it should combine expenditure-switching policies and expenditure-changing policies to maintain a decent non-inflationary growth rate, while keeping the current-account-balance-to-GDP ratio at a rational level.

Keywords: global imbalances; current account surplus; China; RMB exchange rate; FDI; Swan diagram; the saving gap; E58; F41

Journal Article.  7962 words.  Illustrated.

Subjects: Macroeconomic Aspects of International Trade and Finance ; Monetary Policy, Central Banking, and the Supply of Money and Credit

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