Author information:
Géza Rippel: Magyar Nemzeti Bank, Analyst. E-mail: rippelg@mnb.hu
Abstract:
The People’s Republic of China has experienced buoyant economic growth in the past decades, managing a remarkable convergence to advanced economies. The growth rate of GDP slowed down significantly after the outbreak of the global crisis, due to both cyclical and structural factors. Serious imbalances inherited from the pre-crisis growth model have emerged, challenging the sustainability of rapid economic convergence. In the ‘new normal’, China has been rebalancing its economy by emphasising household consumption, although the importance of the private sector needs to be further strengthened. To avoid the middle-income trap, China must raise productivity driven by domestic innovation, higher value added production and a more flexible financial system. Shifting to a more balanced and sustainable growth path requires the reduction of present imbalances, such as the remarkable regional disparities and the weaknesses of the Chinese financial system. This study highlights the criteria for successful convergence using the conclusions of convergence theory and the experiences of East Asian countries.
Cite as (APA):
Rippel, G. (2017). China – Rebalancing and Sustainable Convergence. Financial and Economic Review, 16(Special Issue), 50–72. https://hitelintezetiszemle.mnb.hu/en/geza-rippel
Column:
Study
Journal of Economic Literature (JEL) codes:
O1, O47, O53
Keywords:
China, economic convergence, middle-income trap, aggregate productivity, economic structure
References:
Agenor, P.R. – Canuto, O. (2012): Middle-income growth traps. Policy Research Working Paper Series 6210, The World Bank.
Aiyar, S. – Duval, R. – Puy, D. – Wu, Y. – Zhang, L. (2013): Growth Slowdowns and the Middle-Income Trap. IMF Working Papers 13/71, International Monetary Fund.
Anzoategui, D. – Chivakul, M. – Maliszewski, W. (2015): Financial Distortions in China: A General Equilibrium Approach. IMF Working Papers 15/274, International Monetary Fund.
Baldwin, R. (2012): Global supply chains: Why they emerged, why they matter, and where they are going. CEPR Discussion Paper No. 9103, August 2012.
Batson, A. – Zhang, J. (2011): The great rebalancing (I)–does China invest too much? GK Dragonomics research note.
Bernard, A. – Durlauf, S.N. (1996): Interpreting Tests of the Convergence Hypothesis, Journal of Econometrics. 71 (1–2), pp. 161–173.
Bloom, D.E. – Williamson, J.G. (1998): Demographic transitions and economic miracles in emerging Asia. The World Bank Economic Review, 12(3).
Brandt, L. – Kambourov, G. – Storesletten, K. (2016): Barriers to Entry and Regional Economic Growth in China. Conference on China’s Financial Markets and the Global Economy, Suomen Pankki, 16 September 2016. http://www.suomenpankki.fi/bofit_en/tutkimus/tyopajat/Documents/China2016/BKS_2016_09_16_Finland (1).pdf. Downloaded: 19 September 2016.
Cai, F. (2015): How to tackle the slowdown of potential growth rate in China?. China Finance and Economic Review, 3(1).
Dollar, D. – Wei, S.J. (2007): Das (wasted) Kapital: firm ownership and investment efficiency in China. NBER Working Papers 13103, National Bureau of Economic Research, Inc.
Dorrucci, E. – Pula, G. – Santabárbara, D. (2013): China’s Economic Growth and Rebalancing. Occasional Paper Series 142, European Central Bank.
Durlauf, S.N. – Johnson, P.A. – Temple, J.R.W. (2006): Growth Econometrics. in Aghion P. – Durlauf, S. N. (eds) Handbook of Economic Growth. Amsterdam: North Holland.
Eichengreen, B. – Park, D. – Shin, K. (2012): When Fast-Growing Economies Slow Down: International Evidence and Implications for China. Asian Economic Papers, MIT Press, vol. 11(1), pp. 42-87, February.
Eichengreen, B. – Park, D. – Shin, K. (2013): Growth Slowdowns Redux: New Evidence on the Middle-Income Trap. NBER Working Papers 18673, National Bureau of Economic Research, Inc.
Fang, C. – Yang, L. (2013): The End of China’s Demographic Dividend: The Perspective of Potential GDP Growth, in Garnaut, R. – Song, L. – Fang, C. (eds): China: A New Model for Growth and Development. Canberra: ANU E-Press and Beijing: China Academy of Social Sciences Press.
Felipe, J. – Abdon, A. – Kumar, U. (2012): Tracking the Middle-income Trap: What Is It, Who Is in It, and Why? Economics Working Paper Archive wp_715, Levy Economics Institute.
Fungáčová, Z. – Weill, L. (2016): Trusting Banks in China. Conference on China’s Financial Markets and the Global Economy, Suomen Pankki, 16 September 2016. http://www.suomenpankki.fi/bofit_en/tutkimus/tyopajat/Documents/China2016/trustchina_September2016.pdf Downloaded: 19 September 2016.
Galor, O. (1996): Convergence? Inferences from Theoretical Models. Economic Journal, 106(437), pp. 1056–1069, July.
Garnaut, R. – Fang, C. – Song, L. (2013): China’s New Strategy for Long-term Growth and Development: Imperatives and Implications, in Garnaut, R. – Song, L. – Fang, C. (eds): China: A New Model for Growth and Development. Canberra: ANU E-Press and Beijing: China Academy of Social Sciences Press.
Hasan, I. – Zhu, Y. (2016): Politics and Financial Flexibility: an Empirical Investigation. Conference on China’s Financial Markets and the Global Economy, Suomen Pankki, 16 September 2016. http://www.suomenpankki.fi/bofit_en/tutkimus/tyopajat/Documents/China2016/Hasan_ZHU.pdf. Downloaded: 19 September 2016.
Huang, Y. – Cai, F. (2010): Debating China’s Lewis Turning Point. China Economic Journal, vol. 3, no. 2.
Huang, Y. (2012): Beyond the Miracle—Great Wave of Consumption Upgrading. January, Barclays, Hong Kong.
Huang, Y. – Fang, C. – Xu, P. – Qin, G. (2013): The New Normal of Chinese Development, in Garnaut, R. – Song, L. – Fang, C. (eds): China: A New Model for Growth and Development. Canberra: ANU E-Press and Beijing: China Academy of Social Sciences Press.
IMF (2016): World Economic Outlook Update July 2016: Uncertainty in the Aftermath of the U.K. Referendum. International Monetary Fund, Washington, D.C. http://www.imf.org/external/pubs/ft/weo/2016/update/02/pdf/0716.pdf. Downloaded: 18 September 2016.
Koopman, R. – Powers, W. – Wang, Z. – Wei, S.J. (2010): Give Credit Where Credit Is Due: Tracing Value Added in Global Production Chains. NBER Working Papers 16426, National Bureau of Economic Research, Inc.
Koopman, R. – Wang, Z. – Wei, S.J. (2014): Tracing Value-added and Double Counting in Gross Exports. American Economic Review, 104(2): 459–494.
Kuznets, S. (1966): Modern Economic Growth. New Haven: Yale University Press.
Li, Z. (2013): China’s Agricultural Development: Achievements and Challenges, in Garnaut, R. – Song, L. – Fang, C. (eds): China: A New Model for Growth and Development. Canberra: ANU E-Press and Beijing: China Academy of Social Sciences Press.
Li, D. – Xu, S. (2012): The Rebalancing of the Chinese Economy. CCER-NBER conference on the Chinese economy, Peking University, 25–26 June, Beijing.
Lin, J. (2011): Demystifying the Chinese economy. Cambridge University Press.
Maddison, A. (1982): Phases of Capitalist Development. New York: Oxford University Press.
Maddison, A. (2007): Chinese Economic Performance in the Long Run: AD 960-2030. OECD Development Centre, Paris.
Maddison, A. (2010): Historical Statistics of the World Economy: 1-2008 AD. http://www.rug.nl/ggdc/historicaldevelopment/maddison/ Downloaded: 12 September 2016.
OECD (2014): Perspectives on Global Development 2014: Boosting Productivity to Meet the Middle-Income Challenge. OECD.
OECD (2016a): Economic Outlook for Southeast Asia, China and India 2016: Enhancing Regional Ties. OECD Publishing, Paris. http://dx.doi.org/10.1787/saeo-2016-en. Date of download: 20 October 2016.
OECD (2016b): OECD Economic Outlook. Volume 2016 Issue 1, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_outlook-v2016-1-en. Date of download: 18 September 2016.
Perez-Sebastian, F. (2007): Public Support to Innovation and Imitation in a Non-Scale Growth Model. Journal of Economic Dynamics and Control, 31 (December 2007), pp. 3791–3821.
Perkins, D. – Rawski, T.G. (2008): Predicting the Chinese Economy by 2025, in Brandt, L. – Rawski, T. G. (eds) China’s Great Economic Transformation. Cambridge University Press.
Pritchett, L. – Summers, L.H. (2014): Asiaphoria Meets Regression to the Mean. NBER Working Papers 20573, National Bureau of Economic Research, Inc.
Ramsey, F.P. (1928): A Mathematical Theory of Saving. Economic Journal, 38(152), pp. 543–559, December.
Ranis, G. (2004): Arthur Lewis’ Contribution to Development Thinking and Policy. Yale University Economic Growth Center Discussion Paper No. 891 (August).
Rohwer, J. (1995): Asia Rising. Touchstone, Rockefeller Center, Simon & Schuster, New York.
Rodrik, D. (2016): Premature deindustrialization. Journal of Economic Growth. Volume 21, Issue 1, pp. 1–33.
Solow, R.M. (1956): A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), pp. 65–94.
Williams, J.C. (2013): Rebalancing the Economy: A Tale of Two Countries. FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov12.
Williamson, J.G. (1998): Growth, distribution and demography: Some lessons from history. Explorations in Economic History, 35(3).
World Bank (2015): Updated Income Classifications. http://data.worldbank.org/news/2015-country-classifications. Downloaded: 12 September 2016.
World Economic Forum (2016): The Global Competitiveness Report 2015–2016. http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf. Downloaded: 12 September 2016.
Xuequan, M. (2014): China should adapt to new norm of growth: Xi. Xinhuanet News Website. http://news.xinhuanet.com/english/china/2014-05/10/c_126484869_2.htm. Downloaded: 18 October 2016.
Ye, M. – Meng, B. – Wei, S.J. (2015): Measuring Smile Curves in Global Value Chains. IDE Discussion Paper No. 530.