IDEAS home Printed from https://ideas.repec.org/p/cth/wpaper/gru_2017_010.html
   My bibliography  Save this paper

A Rebalancing Chinese Economy: Drivers and Challenges

Author

Listed:
  • Guonan Ma

    (Reserve Bank of Australia)

  • Ivan Roberts

    (Reserve Bank of Australia)

  • Gerard Kelly

    (Reserve Bank of Australia)

Abstract

This paper presents macroeconomic evidence that a rebalancing from a lop-sided investment- and export-driven pattern of growth towards more consumption-driven growth is already occurring in China, supported by a declining return to capital and a now-rising labour share of income. We argue that the extraordinary strength of Chinese household consumption in recent years casts doubt on hypotheses that Chinese consumption has been repressed through factor price distortions. Based on evidence from China’s flow-of-funds accounts, we also contend that conventional analysis has understated the role of investment by households in supporting growth of gross fixed capital formation in recent years. While recent discussions stress the need to reform financial markets to foster rebalancing, we argue that rebalancing will probably happen anyway as a natural outcome of dwindling income windfalls from worsening demographics, fading positive productivity shocks and maturing housing markets, all of which helped drive the imbalances in the first place. An analysis of historical ‘rebalancing’ episodes in other economies further suggests that the bulk of adjustment in coming years is likely to occur through slowing investment rather than an increase in the growth rate of consumption.

Suggested Citation

  • Guonan Ma & Ivan Roberts & Gerard Kelly, 2017. "A Rebalancing Chinese Economy: Drivers and Challenges," GRU Working Paper Series GRU_2017_010, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
  • Handle: RePEc:cth:wpaper:gru_2017_010
    as

    Download full text from publisher

    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232017-010%20Ma%20Roberts%20Kelly.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Malhar S Nabar, 2011. "Targets, Interest Rates, and Household Saving in Urban China," IMF Working Papers 11/223, International Monetary Fund.
    2. Hanming Fang & Quanlin Gu & Wei Xiong & Li-An Zhou, 2016. "Demystifying the Chinese Housing Boom," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 105-166.
    3. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
    4. Brandt,Loren & Rawski,Thomas G. (ed.), 2008. "China's Great Economic Transformation," Cambridge Books, Cambridge University Press, number 9780521885577.
    5. Dong He & Honglin Wang & Xiangrong Yu, 2015. "Interest Rate Determination in China: Past, Present, and Future," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 255-277, December.
    6. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
    7. Il Houng Lee & Murtaza H Syed & Liu Xueyan, 2012. "Is China Over-Investing and Does it Matter?," IMF Working Papers 12/277, International Monetary Fund.
    8. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    9. Leon Berkelmans & Hao Wang, 2012. "Chinese Urban Residential Construction to 2040," RBA Research Discussion Papers rdp2012-04, Reserve Bank of Australia.
    10. Ettore Dorrucci & Gabor Pula & Daniel Santabárbara, 2013. "China’s economic growth and rebalancing," Occasional Papers 1301, Banco de España;Occasional Papers Homepage.
    11. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    12. repec:cii:cepiie:2010-april-122-4 is not listed on IDEAS
    13. Nicholas R. Lardy, 2012. "Sustaining China's Economic Growth after the Global Financial Crisis," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6260.
    14. Kenneth S. Rogoff & Maurice Obstfeld, 2009. "Global imbalances and the financial crisis: products of common causes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct, pages 131-172.
    15. Johansson, Anders C., 2012. "Financial Repression and China’s Economic Imbalances," Working Paper Series 2012-22, Stockholm School of Economics, China Economic Research Center.
    16. Leon Berkelmans & Hao Wang, 2012. "Chinese Urban Residential Construction," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 21-26, September.
    17. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," International Economics, CEPII research center, issue 122, pages 5-39.
    18. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    19. Holz, Carsten A., 2006. "New capital estimates for China," China Economic Review, Elsevier, vol. 17(2), pages 142-185.
    20. Ivan Roberts & Cai Fang, 2015. "Potential Growth and Rebalancing in China," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 29-38, June.
    21. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
    22. Brandt,Loren & Rawski,Thomas G. (ed.), 2008. "China's Great Economic Transformation," Cambridge Books, Cambridge University Press, number 9780521712903.
    23. Dwight H. Perkins, 2015. "Understanding the Slowing Growth Rate of the People's Republic of China," Asian Development Review, MIT Press, vol. 32(1), pages 1-30, March.
    24. Holz, Carsten A., 2006. "Response to Gregory C. Chow's "New Capital Estimates for China: Comments"," China Economic Review, Elsevier, vol. 17(2), pages 193-197.
    25. Guonan Ma & Robert McCauley & Lillie Lam, 2013. "The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 72-84, February.
    26. Mali Chivakul & Waikei R Lam, 2015. "Assessing China’s Corporate Sector Vulnerabilities," IMF Working Papers 15/72, International Monetary Fund.
    27. Berlemann Michael & Wesselhöft Jan-Erik, 2014. "Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method: A Survey of Previous Implementations and New Empirical Evidence for 103 Countries," Review of Economics, De Gruyter, vol. 65(1), pages 1-34, April.
    28. Mali Chivakul & Waikei R Lam & Xiaoguang Liu & Wojciech Maliszewski & Alfred Schipke, 2015. "Understanding Residential Real Estate in China," IMF Working Papers 15/84, International Monetary Fund.
    29. repec:cii:cepiei:2010-april-122-4 is not listed on IDEAS
    30. Wenlang Zhang & Gaofeng Han & Brian Ng & Steven Chan, 2015. "Corporate Leverage in China: Why has It Increased Fast in Recent Years and Where do the Risks Lie?," Working Papers 102015, Hong Kong Institute for Monetary Research.
    31. Nicholas R. Lardy, 2014. "Markets over Mao: The Rise of Private Business in China," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6932.
    32. Guonan Ma & Xiandong Yan & Xi Liu, 2012. "China'S Reserve Requirements: Practices, Effects, And Implications," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 1-34.
    33. Morris Goldstein & Nicholas R. Lardy (ed.), 2008. "Debating China's Exchange Rate Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4150.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    internal rebalancing; external rebalancing; China;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cth:wpaper:gru_2017_010. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (GRU). General contact details of provider: http://edirc.repec.org/data/decithk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.