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Factor Market Distortion and the Current Account Surplus in China

Author

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  • Yiping Huang

    (China Center for Economic Research, Peking University, Yiheyuan Road No. 5, Beijing, China 100871.)

  • Kunyu Tao

    (China Center for Economic Research, Peking University, Yiheyuan Road No. 5, Beijing, China 100871.)

Abstract

China's large current account surpluses not only destabilize its own macroeconomic conditions, but are also a focal point for global rebalancing discussions. Existing explanations by the literature fail either to account for the recent surge or to offer actionablepolicy responses. In this study, we propose an alternative hypothesis: asymmetric market liberalization and associated cost distortions. These distortions are producer subsidy equivalents, which contributed to both extraordinary growth performance and the growing structural imbalances. Our rough estimates of such factor cost distortions offer some explanations for recent movements of the current account. We argue that China needs to adopt a comprehensive reform package to rebalance its economy. (c) 2010 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Suggested Citation

  • Yiping Huang & Kunyu Tao, 2010. "Factor Market Distortion and the Current Account Surplus in China," Asian Economic Papers, MIT Press, vol. 9(3), pages 1-36, Fall.
    • Handle: RePEc:tpr:asiaec:v:9:y:2010:i:3:p:1-36
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    Cited by:

    1. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    2. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031, Elsevier.
    3. Juan Tang & Fangming Qin, 2022. "Analyzing the impact of local government competition on green total factor productivity from the factor market distortion perspective: based on the three stage DEA model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(12), pages 14298-14326, December.
    4. Tie, Ying & Wang, Zheng, 2022. "Publish or perish? A tale of academic publications in Chinese universities," China Economic Review, Elsevier, vol. 73(C).
    5. Dennis Tao Yang, 2012. "Aggregate Savings and External Imbalances in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 125-146, Fall.
    6. Yiping Huang & Daili Wang & Gang Fan, 2014. "Paths to a Reserve Currency : Internationalization of the Renminbi and Its Implications," Macroeconomics Working Papers 24165, East Asian Bureau of Economic Research.
    7. Andrea Fracasso, 2015. "Economic Rebalancing and Growth: the Japanese experience and China’s prospects," DEM Discussion Papers 2015/07, Department of Economics and Management.
    8. Julan Du & Hongsheng Fang & Xiangrong Jin, 2013. "Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment," Working Papers 232013, Hong Kong Institute for Monetary Research.
    9. Du, Julan & Fang, Hongsheng & Jin, Xiangrong, 2014. "The “growth-first strategy” and the imbalance between consumption and investment in China," China Economic Review, Elsevier, vol. 31(C), pages 441-458.
    10. Xin Gu & Zhang-Yue Zhou & Yan-Rui Wu, 2019. "Understanding China’S Urban Consumption Patterns: New Estimates And Implications," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(04), pages 961-981, September.
    11. Françoise Lemoine & Deniz Ünal, 2012. "Scanning the Ups and Downs of China’s Trade Imbalances," Working Papers 2012-14, CEPII research center.
    12. Wu, Harry X., 2019. "Towards an Institutional Interpretation of TFP Changes in China," CEI Working Paper Series 2019-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    13. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    14. Harry X Wu, 2016. "China's Institutional Impediments to Productivity Growth," RBA Annual Conference Volume (Discontinued), in: Iris Day & John Simon (ed.),Structural Change in China: Implications for Australia and the World, Reserve Bank of Australia.
    15. Guanghua Wan & Peter J. Morgan & Harry X. Wu, 2016. "Sustainability of China's Growth Model: A Productivity Perspective," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(5), pages 42-70, September.
    16. Sinproh Chalotorn & Sipko Juraj, 2014. "Global Imbalances," Creative and Knowledge Society, Sciendo, vol. 4(1), pages 1-15, July.
    17. Harry X. Wu & Deb Kusum Das & K. L. Krishna & Pilu Chandra Das, 2017. "How Does the Productivity and Economic Growth Performance of China and India Compare in the Post-Reform Era, 1981-2011?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 33, pages 91-113, Fall.
    18. Zhang, Jinning & Wang, Jianlong & Yang, Xiaodong & Ren, Siyu & Ran, Qiying & Hao, Yu, 2021. "Does local government competition aggravate haze pollution? A new perspective of factor market distortion," Socio-Economic Planning Sciences, Elsevier, vol. 76(C).

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