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Sustaining China's Economic Growth after the Global Financial Crisis

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  • Nicholas R. Lardy

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    (Peterson Institute for International Economics)

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    Abstract

    The global financial crisis and ensuing economic downturn has raised many questions concerning the future of global economic growth. Prior to the financial crisis, global growth was characterized by growing imbalances, reflected primarily in large trade surpluses in China, Japan, Germany, and the oil exporting countries and rapidly growing deficits, primarily in the United States. The global crisis raises the question of whether the previous growth model of low consumption, high saving countries such as China is obsolete. Although a strong and rapid policy response beginning in the early fall of 2008 made China the first globally significant economy to come off the bottom and begin to grow more rapidly, critics charged that China's recovery was based on the old growth model, relying primarily on burgeoning investment in the short run and the expectation of a revival of expanding net exports once global recovery gained traction. Critics, however, argued that as government-financed investment inevitably tapered off, the likelihood was that global recovery would not be sufficiently strong for China's exports to resume their former role as a major contributor to China's economic expansion. The prospect, in the eyes of these critics, is that China's growth will inevitably falter. This study examines China's response to the global crisis, the prospects for altering the model of economic growth that dominated the first decade of this century, and the implications for the United States and the global economy of successful Chinese rebalancing. On the first it analyzes the strengths and weaknesses of China's stimulus program. On the second it analyzes the nature of origins of the imbalances in China's economy and the array of policy options that the government has to transition to more consumption-driven growth. On the third successful rebalancing would mean that more rapid growth of consumption would offset the drag on growth from a shrinkage of China's external surplus. Successful rebalancing would mean China would no longer be a source of financing for any ongoing US external deficit. From a global perspective China would no longer be a source of the global economic imbalances that contributed to the recent global financial crisis and great recession.

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    Bibliographic Info

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    This book is provided by Peterson Institute for International Economics in its series Peterson Institute Press: All Books with number 6260 and published in 2012.

    ISBN: 978-0-88132-626-0
    Handle: RePEc:iie:ppress:6260

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    Cited by:
    1. Françoise Lemoine, 2013. "From foreign trade to international investment: a new step in China’s integration with the world economy," Economic Change and Restructuring, Springer, vol. 46(1), pages 25-43, March.
    2. Carmen M. Reinhart & Takeshi Tashiro, 2013. "Crowding Out Redefined: The Role of Reserve Accumulation," NBER Working Papers 19652, National Bureau of Economic Research, Inc.
    3. Rod Tyers, 2014. "International Effects of China’s Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2014-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. David Dollar & Benjamin F. Jones, 2013. "China: An Institutional View of an Unusual Macroeconomy," NBER Working Papers 19662, National Bureau of Economic Research, Inc.
    5. Leon Berkelmans & Hao Wang, 2012. "Chinese Urban Residential Construction to 2040," RBA Research Discussion Papers rdp2012-04, Reserve Bank of Australia.
    6. Johansson, Anders C. & Feng, Xunan, 2013. "The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program," Working Paper Series 2013-25, Stockholm China Economic Research Institute, Stockholm School of Economics.
    7. Nicholas R. Lardy & Nicholas Borst, 2013. "A Blueprint for Rebalancing the Chinese Economy," Policy Briefs PB13-2, Peterson Institute for International Economics.
    8. Christian Milelli & Alice Sindzingre, 2013. "Chinese Outward Foreign Direct Investment in Developed and Developing Countries: Converging Characteristics?," EconomiX Working Papers 2013-34, University of Paris West - Nanterre la Défense, EconomiX.
    9. Volz, Ulrich, 2013. "RMB internationalisation and currency co-operation in East Asia," Working Papers 125, University of Leipzig, Faculty of Economics and Management Science.
    10. Reinhart, Carmen, 2012. "Capital Inflows, Credit Booms and Their Risks," MPRA Paper 50981, University Library of Munich, Germany.
    11. Gao, Qin & Yang, Sui & Li, Shi, 2012. "Labor contracts and social insurance participation among migrant workers in China," China Economic Review, Elsevier, vol. 23(4), pages 1195-1205.
    12. Thilo Hanemann, 2014. "Chinese direct investment in the EU and the US: a comparative view," Asia Europe Journal, Springer, vol. 12(1), pages 127-142, March.
    13. Roberta Benini & He Liping, 2013. "Special issue on China: Re-thinking China’s economic transition and development in the post-crisis era," Economic Change and Restructuring, Springer, vol. 46(1), pages 1-7, March.

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