Rebalancing China’s Economy : What Does Growth Theory Tell Us?

Author/Editor:

Jahangir Aziz

Publication Date:

December 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses the standard one-sector neoclassical growth model to investigate why China's consumption has been low and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts that the price of capital may have been significantly distorted in the 1990s and 2000s. The distortion could have been caused by nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending. If China is to rebalance growth towards relying more on consumption and less on exports and investment, banking sector reforms and financial market development could, therefore, turn out to be key.

Series:

Working Paper No. 06/291

Subject:

English

Publication Date:

December 1, 2006

ISBN/ISSN:

9781451865516/1018-5941

Stock No:

WPIEA2006291

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

34

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