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The Structural Nature of Internal and External Imbalances in China

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  • Wing Thye Woo

Abstract

China has a built-in inflationary tendency because of the partially-reformed nature of its economic system. Specifically, the post-1978 marketization of the economy has interacted with the continued state ownership to create an inflationary 'liquidity tango' between the state-owned enterprises (SOEs) and the state-owned banks. Whenever the hard budget constraint is imposed on the SOEs, China's dysfunctional financial system would impart a deflationary bias to the economy and render China a capital exporting country by constraining the growth of aggregate demand to be less than the growth of aggregate supply. The use of price mechanisms as the only instruments for all economic problems is not appropriate for China's transitional economy, e.g. trade surpluses are better handled by the establishment of an efficient financial intermediation mechanism than by appreciation of the Yuan.

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  • Wing Thye Woo, 2006. "The Structural Nature of Internal and External Imbalances in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 4(1), pages 1-19.
    • Handle: RePEc:taf:jocebs:v:4:y:2006:i:1:p:1-19
    DOI: 10.1080/14765280600551208
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    References listed on IDEAS

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    1. Woo Wing Thye & Hai Wen & Jin Yibiao & Fan Gang, 1994. "How Successful Has Chinese Enterprise Reform Been? Pitfalls in Opposite Biases and Focus," Journal of Comparative Economics, Elsevier, vol. 18(3), pages 410-437, June.
    2. Donald Hanna & Yiping Huang, 2004. "The Impact of SARS on Asian Economies," Asian Economic Papers, MIT Press, vol. 3(1), pages 102-112.
    3. Woo, Wing Thye, 2001. "Recent claims of China's economic exceptionalism: Reflections inspired by WTO accession," China Economic Review, Elsevier, vol. 12(2-3), pages 107-136.
    4. Wing Thye Woo, 2001. "Recent Claims of China's Economic Exceptionalism: Reflections Inspired by WTO Accession," CID Working Papers 70A, Center for International Development at Harvard University.
    5. Liu, Liang-Yn & Woo, Wing Thye, 1994. "Saving Behaviour under Imperfect Financial Markets and the Current Account Consequences," Economic Journal, Royal Economic Society, vol. 104(424), pages 512-527, May.
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    Citations

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    Cited by:

    1. Ahmed, Khalid & Long, Wei, 2012. "An Analysis of Core Factors Contributing to U.S – China Trade Imbalance," MPRA Paper 44733, University Library of Munich, Germany.
    2. Carl Bonham & Calla Wiemer, 2013. "Chinese saving dynamics: the impact of GDP growth and the dependent share," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 173-196, January.
    3. Woo, Wing Thye, 2018. "A U.S. perspective on China's external economic disputes in the past 40 years and in the coming 40 years," BOFIT Policy Briefs 7/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Noorbakhsh, Farhad & Wang, Zhikai, 2010. "Interprovincial disparities in China since the reforms: Convergence or divergence?," SIRE Discussion Papers 2010-77, Scottish Institute for Research in Economics (SIRE).
    5. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
    6. Meixing Dai, 2013. "In search of an optimal strategy for yuan’s real revaluation," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(1), pages 29-46, February.
    7. Liu, Lana Y.J. & Pan, Fei, 2007. "The implementation of Activity-Based Costing in China: An innovation action research approach," The British Accounting Review, Elsevier, vol. 39(3), pages 249-264.
    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. Bagnai, Alberto, 2009. "The role of China in global external imbalances: Some further evidence," China Economic Review, Elsevier, vol. 20(3), pages 508-526, September.
    11. Huang, Yiping & Tao, Kunyu, 2011. "Causes of and Remedies for the People’s Republic of China’s External Imbalances: The Role of Factor Market Distortion," ADBI Working Papers 279, Asian Development Bank Institute.

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