Causes of and Remedies for the People’s Republic of China’s External Imbalances: The Role of Factor Market Distortion
AbstractThe current account surplus of the People’s Republic of China (PRC) has drawn much foreign and domestic attention. This paper focuses on the reasons and remedies for the PRC’s current account surpluses. Rather than deploying the standard explanations, we argue that asymmetric market liberalization and the related factor market distortion is the root reason for the PRC’s external imbalances. These cost distortions have artificially lowered PRC production costs, raised profits, and improved their products’ international competitiveness which has not only stimulated the economy, but also brought about severe structural risks. We completed a crude estimation for factor cost distortions in the PRC during 2000–2009 which matched its current account surpluses quite well. In order to rebalance the economy, we recommend that the PRC should adopt a comprehensive reform package focusing on removing the factor market distortions.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 279.
Length: 33 pages
Date of creation: 15 Apr 2011
Date of revision:
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prc; current account surplus; economic rebalancing; exchange rate; factor market distortion;
Find related papers by JEL classification:
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-23 (All new papers)
- NEP-MAC-2011-04-23 (Macroeconomics)
- NEP-TRA-2011-04-23 (Transition Economics)
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- Tomoyuki Fukumoto & Ichiro Muto, 2012.
"Rebalancing China's Economic Growth: Some Insights from Japan's Experience,"
China & World Economy,
Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(1), pages 62-82, 01.
- Muto, Ichiro & Fukumoto, Tomoyuki, 2011. "Rebalancing China’s economic growth: some insights from Japan’s experience," MPRA Paper 32570, University Library of Munich, Germany.
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