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Financial Repression and China’s Economic Imbalances

Increasing domestic and external imbalances pose a serious challenge to economic development in China. While several forms of economic imbalances have been identified and discussed, many of these imbalances represent symptoms rather than the main issues that Chinese policymakers have to deal with in order to sustain economic growth over the next decade. Building on recent research on the relationship between financial repression and economic imbalances, the main premise of this paper is that financial repression in China has been at least partly responsible for extremely high levels of investments, a very strong industrial sector and a weakly developed service sector, serious external imbalances and rising inequality. This paper discusses how the Chinese government has used repressive financial policies since the beginning of the reforms, how these policies have resulted in economic imbalances, and some initial suggestions on financial reforms that would help in the pursuit of rebalancing the Chinese economy.

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Paper provided by China Economic Research Center, Stockholm School of Economics in its series Working Paper Series with number 2012-22.

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Length: 31 pages
Date of creation: 27 Apr 2012
Date of revision:
Handle: RePEc:hhs:hacerc:2012-022
Contact details of provider: Postal: China Economic Research Center, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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