## 1. Rebalancing the Chinese economy is critical.

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### Developments and drivers in each dimension of rebalancing
- Framework and scope
  - Uses the 4-dimensional rebalancing framework of Zhang (2016): (i) external (external to domestic demand), (ii) internal (investment to consumption, industry to services and less credit-intensive growth), (iii) environmental (reduce pollution), and (iv) distributional (reduce inequality). Each dimension includes a set of summary indicators.
- General assessment for 2017
  - "Rebalancing decelerated in 2017. Progress was uneven: external and distributional reversed, internal saw mixed progress, and environmental progressed."
  - The same temporary factors that supported growth were behind the slowdown in rebalancing.

### External rebalancing — key outcomes and drivers in 2017
- Contribution of external demand to real GDP growth in 2017 was 0.6 percentage points, the largest since the Global Financial Crisis.
- The switch in contribution from 2016 to 2017 was 1.3 percentage points, compared with the rise in headline real GDP growth of 0.2 percentage points.
- Real exports rose 9.2 percent in 2017.
- Real imports rose 6.9 percent in 2017.
- By comparison, average 2015-2016 real export and import growth were 0.4 and 2.5 percent respectively.
- Current account (CA) surplus declined to 1.4 percent of GDP.
- CA declined by about $25 bn in nominal terms with the trade balance declining by around $35 bn.
- The nominal decline in the trade balance is more than fully attributable to RMB denominated terms-of-trade (ToT); the CA would have risen on real trade alone and exchange rate movements had a negligible impact.
- The average bilateral RMBUSD rate depreciated 1.7 percent in 2017.
- A sharp rise in the prices of raw materials is behind the decline in ToT, despite marginally higher export prices.

### Internal rebalancing — real-term developments and PPI effects
- Demand-side real developments
  - Investment was weak as real estate investment and manufacturing growth were sluggish.
  - Infrastructure investment accounted for about 28 percent of total fixed asset investment (FAI) in 2017, up from 23 percent in 2011.
- Supply-side real developments
  - Services remained a key driver, particularly the IT sector.
  - Real estate sector contributed 0.3 percentage points to real GDP growth in 2017, down from 0.5 percentage points in 2016.
  - Other services posted robust growth and their contribution to growth held steady in 2017.
- Nominal-term developments and PPI effects
  - Producer prices (PPI) turned sharply: PPI inflation reached yearly inflation of 6.3 percent in 2017 after 54 quarters of deflation up to late-2015.
  - On the demand-side, investment prices surged on the back of the PPI rebound, while CPI remained subdued depressing nominal consumption growth.
  - On the supply-side, industry deflator grew 6.3 percent; services deflator inflation was 3.2 percent.
  - The PPI reflation supported deleveraging:
    - Free cash flow grew rapidly in downstream and particularly upstream industries, driven by higher pre-tax profits and reduction in taxes and fees paid by corporates.
    - Nonfinancial private debt grew at a slower pace and credit intensity improved.
    - Example regression: the regression coefficient of nominal GDP growth on bank loan growth at the provincial level was 0.63 in 2017 compared to the coefficient for 2011-16 at 0.31.

### Environmental rebalancing — policies, outcomes, and sustainability
- Policy actions in 2017
  - Ratio of coal consumption in China's total energy use fell from 67 percent to around 60 percent.
  - Some 20 million polluting vehicles were taken off the roads.
  - Beijing metro area: intensive campaign to switch heating systems away from coal to electricity and natural gas; its last large coal-fired power plant was shut down in March 2017.
  - Nation-wide inspection campaign to check compliance with environmental standards.
- Outcomes
  - Generalized improvement in air quality during the winter: indices measuring PM 2.5 in 74 cities declined almost uniformly, particularly in densely populated cities.
  - Electricity intensity of growth continues to improve.
- Considerations and sustainability
  - Many actions were administrative; market-based measures likely needed to sustain improvements.
  - Crackdown on polluting industries likely to continue, possibly adversely affecting growth and local labor markets.
  - Market-based approaches under consideration or implementation include a carbon or coal tax and environment protection tax.

### Distributional rebalancing — poverty, social programs, inequality, and spatial divergence
- Poverty reduction
  - Number of people under the national poverty line declined from 765 million in 1980 to just less than 27 million in 2017, a rate of reduction of about 20 million per year.
  - The target to reduce this number to zero seems within reach, but the remaining poor will be the hardest to target.
- Social programs and coverage
  - Growing disbursements under social-assistance programs Dibao and Wubao, even though number of recipients fell as incomes rose above eligibility thresholds.
  - Other large programs that benefited lower income households expanded, including shanty town renovation project and rural health and pension systems.
  - Notes on programs:
    - Dibao provides cash assistance to people whose monthly income is below a minimum livelihood threshold.
    - Wubao covers the elderly, disabled and children without supporting family members by providing a basic allowance, medical care, funeral expenses, and 9-year compulsory education if the recipient is under 16.
    - New Rural Cooperative Medical Scheme and New Rural Social Pension Scheme introduced in 2003 and 2009, respectively.
- Inequality and spatial divergence
  - China’s Gini index increased marginally in 2017 to 0.467, not far below the peak level of 0.491 in 2008.
  - Ratio of urban-to-rural incomes declined steadily up to 2012 but flattened since 2013.
  - Median disposable income, which had grown above mean disposable income, grew comparatively less in 2017.
  - Labor income to GDP fell marginally in 2017 after rising for several years.
  - Spatial inequality increased; convergence across provinces remains a challenge:
    - Regions further left behind in 2017 included northeast provinces Liaoning, Jilin and Heilongjiang; western provinces Qinghai, Gansu and Ningxia; and Hainan.
    - Rich coastal provinces and municipalities Beijing and Chongqing overperformed.
    - Only Hebei, Henan, Xinjiang, and Shanxi exited the group of provinces struggling to converge.
- Factors behind elevated inequality
  - Rapid urbanization amid insufficient health and education coverage for migrants.
  - Structure of fiscal expenditure has hindered greater equalization across geography and economic status.
  - Poorer provinces rely greatly on transfers from the central government, which are still insufficient despite recent increases.
  - Fiscal spending does not rely much on direct transfers, resulting in unusually high savings rates of poorer households compared to other economies.

### Putting it all together: Interactions, trade-offs, outlook, and policy recommendations
- Reinforcing channels across dimensions
  - External rebalancing requires a move away from export-intensive manufacturing facilitating internal rebalancing.
  - Larger consumption supports the services industry and requires less manufacturing.
  - More consumption, less investment and manufacturing reduce pollution.
  - More consumption and labor-intensive services help reduce inequality.
  - External rebalancing reduces spatial inequality as export-intensive growth primarily benefits already-rich coastal provinces.
- Trade-offs identified
  - Lowering import-intensive investment could widen the external imbalance.
  - Reflation of PPI may facilitate deleveraging but worsens other dimensions of internal rebalancing, as in 2017.
  - Environmental protection and reducing inequality may require initial investments and slow internal rebalancing.
  - Environmental protection may affect already-struggling regions disproportionately given their productive structure.
- Outlook (projections and expectations)
  - External
    - External rebalancing is expected to resume.
    - Given global demand projections and China’s domestic demand developments, external demand is not projected to be a major growth driver going forward, despite expected larger demand in Advanced Economies.
    - Current account surplus is projected to decline gradually with unfavorable terms of trade and lower real trade balances playing a role.
  - Internal
    - Internal rebalancing is expected to progress, but deleveraging remains a challenge.
    - Consumption and services are expected to remain growth drivers.
    - Public investment is marginally revised down reflecting focus on deleveraging and increased efforts to limit local government investment.
    - The PPI reflation will moderate and credit to GDP will rise further unless tightening measures result in slower credit growth to the real economy, beyond reducing intra-financial flows.
    - Projection context figures (as presented): Total non-financial sector private debt (In percent of GDP) series labeled 2016–2023; PPI-CPI differential (In percent) series labeled 2016–2023; Contribution to real GDP projections (In percent) for Investment, Consumption, Net Exports, Real GDP growth with values for 2016–2023 (charts cited).
  - Environmental
    - Environmental rebalancing is set to continue; environmental protection will continue as a major policy initiative.
    - More investments are needed to bring the energy production mix and water/sewage systems to greener levels.
    - Such activities will remain supportive of investment in the medium-term and slow the consumption-investment rebalancing.
    - Market-based mechanisms like environment protection taxes and carbon emissions trading should be implemented swiftly to sustain improvements.
  - Distributional
    - Distributional rebalancing will remain a challenge.
    - Demographics, urbanization and structural change are projected to keep income inequality elevated.
    - Environmental rebalancing could put further strain on heavy-industrialized but already struggling regions in the Northeast.
    - Digitalization and technology upgrading have uncertain impacts on inequality: boosting access of underserved communities to financial services and supply chains but also potentially displacing low skilled workers at increasing rates.
- Role of pro-rebalancing policies — implemented measures and recommendations
  - Authorities have aligned economic targets with rebalancing goals in five-year plans and recent announcements; targets cover all four dimensions with particular emphasis on Internal, Environmental and Distributional dimensions.
  - Already implemented measures include opening sectors to foreign investment, strengthening social safety nets by increasing budget support for health care, instituting and enforcing heavier penalties on pollution, and supporting the poor through direct transfers.
  - Recommended additional policy efforts (two broad areas):
    - Policies that reinforce each dimension of rebalancing:
      - External rebalancing: further opening up protected sectors to foreign investment and reducing trade barriers, making the exchange rate more flexible.
      - Internal rebalancing: reduce emphasis of growth targets and their inherent investment bias; further improve social safety nets including pension and healthcare provision to reduce precautionary savings and raise consumption; deregulate the service sector; harden budget constraints of SOEs and LGs while reducing implicit guarantees; continue regulatory tightening to rein-in leverage; reform the financial sector including dealing with implicit guarantees.
      - Environmental rebalancing: further strengthen environmental standards; increased reliance on market-based “green” incentives, e.g. through implementing environment protection tax.
      - Distributional rebalancing: reform intergovernmental relations to increase resources available to local governments and strengthen equalizing transfers across regions; tax policy that reduces income inequality, including making social security contributions more progressive while broadening income tax payments and instituting wealth taxes like a recurrent property tax; boost expenditures that target inequality, including direct transfers to the poor and rural investments.
    - Policies that help undo trade-offs across rebalancing dimensions:
      - Internal-Environmental trade-off: ensure appropriate on-budget investments in green infrastructure.
      - Internal-Distributional trade-off: Hukou reform; centralizing social welfare and assistance functions allowing for greater support of workers in provinces/sectors most affected by restructuring/deleveraging; bring on-budget investment needs to support struggling regions.
      - Environmental-Distributional trade-off: centralizing social welfare and assistance functions allowing for greater support of workers in provinces/sectors most affected by environmental controls.

*Source: IMF staff estimates and analysis (wp18243).*

### 1. Rebalancing the Chinese economy is critical. Economic and social rebalancing is a

### 1. Rebalancing the Chinese economy is critical. Economic and social rebalancing is a

### Developments and drivers in each dimension of rebalancing

- Framework and scope
  - Uses the 4-dimensional rebalancing framework of Zhang (2016): (i) external (external to domestic demand), (ii) internal (investment to consumption, industry to services and less credit-intensive growth), (iii) environmental (reduce pollution), and (iv) distributional (reduce inequality). Each dimension includes a set of summary indicators.

- General assessment for 2017
  - "Rebalancing decelerated in 2017. Progress was uneven: external and distributional reversed, internal saw mixed progress, and environmental progressed."
  - The same temporary factors that supported growth were behind the slowdown in rebalancing.

External rebalancing
- Key outcomes and drivers in 2017
  - Contribution of external demand to real GDP growth in 2017 was 0.6 percentage points, the largest since the Global Financial Crisis.
  - The switch in contribution from 2016 to 2017 was 1.3 percentage points, compared with the rise in headline real GDP growth of 0.2 percentage points.
  - Real exports rose 9.2 percent in 2017.
  - Real imports rose 6.9 percent in 2017.
  - By comparison, average 2015-2016 real export and import growth were 0.4 and 2.5 percent respectively.
- Nominal and terms-of-trade impacts
  - Current account (CA) surplus declined to 1.4 percent of GDP.
  - CA declined by about $25 bn in nominal terms with the trade balance declining by around $35 bn.
  - The nominal decline in the trade balance is more than fully attributable to RMB denominated terms-of-trade (ToT); the CA would have risen on real trade alone and exchange rate movements had a negligible impact.
  - The average bilateral RMBUSD rate depreciated 1.7 percent in 2017.
  - A sharp rise in the prices of raw materials is behind the decline in ToT, despite marginally higher export prices.

Internal rebalancing
- Real-term developments
  - Demand-side:
    - Investment was weak as real estate investment and manufacturing growth were sluggish.
    - Infrastructure investment accounted for about 28 percent of total fixed asset investment (FAI) in 2017, up from 23 percent in 2011.
  - Supply-side:
    - Services remained a key driver, particularly the IT sector.
    - Real estate sector contributed 0.3 percentage points to real GDP growth in 2017, down from 0.5 percentage points in 2016.
    - Other services posted robust growth and their contribution to growth held steady in 2017.
- Nominal-term developments and PPI effects
  - Producer prices (PPI) turned sharply: PPI inflation reached yearly inflation of 6.3 percent in 2017 after 54 quarters of deflation up to late-2015.
  - On the demand-side, investment prices surged on the back of the PPI rebound, while CPI remained subdued depressing nominal consumption growth.
  - On the supply-side, industry deflator grew 6.3 percent; services deflator inflation was 3.2 percent.
  - The PPI reflation supported deleveraging:
    - Free cash flow grew rapidly in downstream and particularly upstream industries, driven by higher pre-tax profits and reduction in taxes and fees paid by corporates.
    - Nonfinancial private debt grew at a slower pace and credit intensity improved.
    - Example regression: the regression coefficient of nominal GDP growth on bank loan growth at the provincial level was 0.63 in 2017 compared to the coefficient for 2011-16 at 0.31.

Environmental rebalancing
- Policy actions in 2017
  - Ratio of coal consumption in China's total energy use fell from 67 percent to around 60 percent.
  - Some 20 million polluting vehicles were taken off the roads.
  - Beijing metro area: intensive campaign to switch heating systems away from coal to electricity and natural gas; its last large coal-fired power plant was shut down in March 2017.
  - Nation-wide inspection campaign to check compliance with environmental standards.
- Outcomes
  - Generalized improvement in air quality during the winter: indices measuring PM 2.5 in 74 cities declined almost uniformly, particularly in densely populated cities.
  - Electricity intensity of growth continues to improve.
- Considerations and sustainability
  - Many actions were administrative; market-based measures likely needed to sustain improvements.
  - Crackdown on polluting industries likely to continue, possibly adversely affecting growth and local labor markets.
  - Market-based approaches under consideration or implementation include a carbon or coal tax and environment protection tax.

Distributional rebalancing
- Poverty reduction
  - Number of people under the national poverty line declined from 765 million in 1980 to just less than 27 million in 2017, a rate of reduction of about 20 million per year.
  - The target to reduce this number to zero seems within reach, but the remaining poor will be the hardest to target.
- Social programs and coverage
  - Growing disbursements under social-assistance programs Dibao and Wubao, even though number of recipients fell as incomes rose above eligibility thresholds.
  - Other large programs that benefited lower income households expanded, including shanty town renovation project and rural health and pension systems.
  - Notes on programs:
    - Dibao provides cash assistance to people whose monthly income is below a minimum livelihood threshold.
    - Wubao covers the elderly, disabled and children without supporting family members by providing a basic allowance, medical care, funeral expenses, and 9-year compulsory education if the recipient is under 16.
    - New Rural Cooperative Medical Scheme and New Rural Social Pension Scheme introduced in 2003 and 2009, respectively.
- Inequality and spatial divergence
  - China’s Gini index increased marginally in 2017 to 0.467, not far below the peak level of 0.491 in 2008.
  - Ratio of urban-to-rural incomes declined steadily up to 2012 but flattened since 2013.
  - Median disposable income, which had grown above mean disposable income, grew comparatively less in 2017.
  - Labor income to GDP fell marginally in 2017 after rising for several years.
  - Spatial inequality increased; convergence across provinces remains a challenge:
    - Regions further left behind in 2017 included northeast provinces Liaoning, Jilin and Heilongjiang; western provinces Qinghai, Gansu and Ningxia; and Hainan.
    - Rich coastal provinces and municipalities Beijing and Chongqing overperformed.
    - Only Hebei, Henan, Xinjiang, and Shanxi exited the group of provinces struggling to converge.
- Factors behind elevated inequality
  - Rapid urbanization amid insufficient health and education coverage for migrants.
  - Structure of fiscal expenditure has hindered greater equalization across geography and economic status.
  - Poorer provinces rely greatly on transfers from the central government, which are still insufficient despite recent increases.
  - Fiscal spending does not rely much on direct transfers, resulting in unusually high savings rates of poorer households compared to other economies.

### Putting it all together: Tradeoffs, Outlook and Policies

- Interactions and trade-offs across dimensions
  - Reinforcing channels:
    - External rebalancing requires a move away from export-intensive manufacturing facilitating internal rebalancing.
    - Larger consumption supports the services industry and requires less manufacturing.
    - More consumption, less investment and manufacturing reduce pollution.
    - More consumption and labor-intensive services help reduce inequality.
    - External rebalancing reduces spatial inequality as export-intensive growth primarily benefits already-rich coastal provinces.
  - Trade-offs:
    - Lowering import-intensive investment could widen the external imbalance.
    - Reflation of PPI may facilitate deleveraging but worsens other dimensions of internal rebalancing, as in 2017.
    - Environmental protection and reducing inequality may require initial investments and slow internal rebalancing.
    - Environmental protection may affect already-struggling regions disproportionately given their productive structure.

- Outlook (projections and expectations)
  - External
    - External rebalancing is expected to resume.
    - Given global demand projections and China’s domestic demand developments, external demand is not projected to be a major growth driver going forward, despite expected larger demand in Advanced Economies.
    - Current account surplus is projected to decline gradually with unfavorable terms of trade and lower real trade balances playing a role.
  - Internal
    - Internal rebalancing is expected to progress, but deleveraging remains a challenge.
    - Consumption and services are expected to remain growth drivers.
    - Public investment is marginally revised down reflecting focus on deleveraging and increased efforts to limit local government investment.
    - The PPI reflation will moderate and credit to GDP will rise further unless tightening measures result in slower credit growth to the real economy, beyond reducing intra-financial flows.
    - Projection context figures (as presented):
      - Total non-financial sector private debt (In percent of GDP): historical and projected series labeled 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023 (chart shown).
      - PPI-CPI differential (In percent): historical and projected series labeled 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023 (chart shown).
      - Contribution to real GDP projections (In percent) for Investment, Consumption, Net Exports, Real GDP growth with values for 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023 (chart shown).
  - Environmental
    - Environmental rebalancing is set to continue; environmental protection will continue as a major policy initiative.
    - More investments are needed to bring the energy production mix and water/sewage systems to greener levels.
    - Such activities will remain supportive of investment in the medium-term and slow the consumption-investment rebalancing.
    - Market-based mechanisms like environment protection taxes and carbon emissions trading should be implemented swiftly to sustain improvements.
  - Distributional
    - Distributional rebalancing will remain a challenge.
    - Demographics, urbanization and structural change are projected to keep income inequality elevated.
    - Environmental rebalancing could put further strain on heavy-industrialized but already struggling regions in the Northeast.
    - Digitalization and technology upgrading have uncertain impacts on inequality: boosting access of underserved communities to financial services and supply chains but also potentially displacing low skilled workers at increasing rates.

- Role of pro-rebalancing policies
  - Authorities have aligned economic targets with rebalancing goals in five-year plans and recent announcements; targets cover all four dimensions with particular emphasis on Internal, Environmental and Distributional dimensions.
  - Already implemented measures include opening sectors to foreign investment, strengthening social safety nets by increasing budget support for health care, instituting and enforcing heavier penalties on pollution, and supporting the poor through direct transfers.
  - Recommended additional policy efforts (two broad areas):
    - Policies that reinforce each dimension of rebalancing:
      - External rebalancing: further opening up protected sectors to foreign investment and reducing trade barriers, making the exchange rate more flexible.
      - Internal rebalancing: reduce emphasis of growth targets and their inherent investment bias; further improve social safety nets including pension and healthcare provision to reduce precautionary savings and raise consumption; deregulate the service sector; harden budget constraints of SOEs and LGs while reducing implicit guarantees; continue regulatory tightening to rein-in leverage; reform the financial sector including dealing with implicit guarantees.
      - Environmental rebalancing: further strengthen environmental standards; increased reliance on market-based “green” incentives, e.g. through implementing environment protection tax.
      - Distributional rebalancing: reform intergovernmental relations to increase resources available to local governments and strengthen equalizing transfers across regions; tax policy that reduces income inequality, including making social security contributions more progressive while broadening income tax payments and instituting wealth taxes like a recurrent property tax; boost expenditures that target inequality, including direct transfers to the poor and rural investments.
    - Policies that help undo trade-offs across rebalancing dimensions:
      - Internal-Environmental trade-off: ensure appropriate on-budget investments in green infrastructure.
      - Internal-Distributional trade-off: Hukou reform; centralizing social welfare and assistance functions allowing for greater support of workers in provinces/sectors most affected by restructuring/deleveraging; bring on-budget investment needs to support struggling regions.
      - Environmental-Distributional trade-off: centralizing social welfare and assistance functions allowing for greater support of workers in provinces/sectors most affected by environmental controls.

*Source: IMF staff estimates and analysis (wp18243).*

### References

### wp18243 - References

### References
- D. Ding, and R. C. Mano, 2018, “China’s Capacity Reduction Reform and Its Impact on Producer Prices,” Selected Issues Paper, 2018 AIV consultation with the People’s Republic of China.
- IMF, 2018, “Regional Economic Outlook: Asia Pacific,” chapter 2, April 2018.
- Jain-Chandra, S., N. Khor, R. C. Mano, J. Schauer, P. Wingender and J. Zhuang, 2018, “Inequality in China – Trends, Drivers and Policy Remedies,” IMF working paper 18/127.
- Lardy, N. R. and N. Borst, 2013, “A Blueprint for Rebalancing the Chinese Economy,” Policy Briefs PB13-2, Peterson Institute for International Economics.
- Wingender, P., 2018, “Intergovernmental Fiscal Reform in China,” IMF working paper 18/88.
- Zhang, L., 2016, “Rebalancing in China—Progress and Prospects,” IMF working paper 16/183.
- Zhang, L., R. Brooks, D. Ding, H. Ding, H. He, J. Lu, R. C. Mano, 2017, “China’s High Savings: Drivers, Prospects, and Policies,” Selected Issues Paper, 2017 AIV consultation with the People’s Republic of China.

### Appendix A — Indicators in the Rebalancing Scorecard
- External rebalancing indicators:
  - current account balance in percent of GDP
  - contribution of net exports to real GDP growth
- Internal rebalancing indicators (three dimensions: demand, supply, credit):
  - Demand side:
    - share of investment and consumption in nominal GDP
    - differential between the contributions of consumption and investment to real GDP growth
  - Supply side:
    - share of the tertiary sector in nominal GDP and employment
    - differential between the contributions of the tertiary and the secondary sectors to real GDP growth
  - Credit side:
    - share of private credit in GDP
    - credit intensity (the amount of credit needed for an additional unit of output)
    - differential in return on assets between SOEs and private enterprises
- Environmental rebalancing indicators:
  - energy intensity (electricity consumption per unit of output)
  - average PM2.5 in 74 cities
- Income distribution indicators:
  - Gini index
  - share of labor income in GDP (proxied by the ratio of household disposable income to GDP)
  - urban-rural income gap
  - growth rate differential between the median and mean of disposable income

### Table A1 — Rebalancing scorecard summary indicators (selected indicator values)
- Years shown: 2015, 2016, 2017
- 1. External rebalancing
  - Contribution of net exports to GDP growth (Difference in ratio): -0.5, -0.6, 1.3
  - Current account balance (Difference in ratio): 0.5, -0.9, -0.4
  - FX reserve coverage (Annual % change): -17.4, 1.8, 7.7
  - National saving rate (Difference in ratio): -1.6, -1.6, -0.1
- 2. Internal rebalancing
  - Demand side
    - Growth contribution of consumption vs investment (Difference in ratio): 1.1, 0.3, 0.3
    - Share of private consumption (Nominal) (Difference in ratio): 0.6, 1.3, -0.3
    - Share of investment (Nominal) (Difference in ratio): -2.0, -0.6, 0.3
  - Supply side
    - Growth contribution of Tertiary vs Secondary sector (Difference in ratio): 0.8, 0.6, 0.1
    - Share of Tertiary sector (Nominal) (Difference in ratio): 2.4, 1.4, 0.2
    - Share of Tertiary sector in total employment (Difference in ratio): 1.8, 1.8, 1.7
  - Credit side
    - Private credit (Annual % change): 7.2, 9.3, 3.6
    - Credit intensity (Annual % change): 24.0, 31.8, -26.9
    - Return on asset: SOE - private (Annual % change): 8.0, -0.3, -27.8
- 3. Environmental rebalancing
  - Energy intensity of output (Annual % change): -3.7, -1.0, -3.7
  - PM 2.5 (Weighted by usual residence) (Annual % change): ... , -10.9, -3.6
- 4. Income distribution
  - Gini (Annual % change): -1.5, 0.6, 0.4
  - Labor income (Difference in ratio): 0.0, 0.6, -0.4
  - Urban/rural income gap (Annual % change): -0.7, -0.4, -0.3
  - Real disposable income growth: Median – Mean (Difference in growth rate differential): -2.1, -0.3, -2.0

- Note: "Green denotes significant progress, yellow moderate progress and red represents reversal of rebalancing. Table A2 explains coloring rules."

### Table A2 — Rebalancing Scorecard Coloring Thresholds and Algorithm
- Coloring algorithm:
  - If the change in a rebalancing indicator means regress in rebalancing, the indicator is assigned the color red.
  - To distinguish yellow from green, thresholds: 0.5 percentage points if the variable is measured in differences; 5 percent if the indicator is measured in annual percent changes.
- Category threshold excerpts (as provided):
  - Difference > 0.5 < 0
  - Difference > 0 < -0.5
  - Annual change > 0 < -5
  - Growth contribution of consumption vs investment Difference < 0 > 0.5
  - Share of private consumption (nominal) Difference < 0 > 0.5
  - Share of investment (nominal) Difference > 0 < -0.5
  - Real growth rate of tertiary vs secondary sector Difference < 0 > 0.5
  - Share of tertiary sector in GDP (nominal) Difference < 0 > 0.5
  - Share of tertiary sector in total employment Difference < 0 > 0.5
  - Private credit Annual change > 0 < -5
  - Credit intensity Annual change > 0 < -5
  - Return on asset: SOE – private Annual change > 0 < -5
  - (Additional repeated rules: Annual change > 0 < -5; Difference < 0 > 0.5)

### Appendix B — Additional Figures (captions and notes)
- B1.1 Drivers of investment growth (In percent year-on-year 3mma)
  - Series labeled: Real estate; Total fixed asset investment; Public infrastructure; Manufacturing
  - Time axis markers: 2016M1, 2016M6, 2016M11, 2017M4, 2017M9, 2018M2, 2018M4
  - Source: CEIC.
- B1.2 Contribution to real GDP growth (In percent)
  - Series and sector labels shown in figure: Transport and post; Wholesale/Retail/Accom.; Financial intermediation; Real estate; Other, including IT; Tertiary sector
  - Annual markers: 2011, 2012, 2013, 2014, 2015, 2016, 2017
  - Numeric annotation examples visible: 1.6, 1.9, 1.6, 1.5, 1.7, 1.9, 2.1; 0.5, 0.5, 0.3, 0.5, 0.1, 0.5, 0.3; 0.7, 0.6, 0.7, 0.8, 0.8, 0.4, 0.4; 1.4, 1.2, 1.0, 1.0, 1.0, 0.8, 0.8; 0.4, 0.4, 0.3, 0.3, 0.3, 0.3, 0.4
  - Source: CEIC and IMF staff estimates.
- B1.3 PPI of intermediate goods (In percent, year-on-year)
  - Time axis markers: 2011M1, 2012M3, 2013M5, 2014M7, 2015M9, 2016M11, 2018M1
  - Series compared: Japan; EA 19; US PPI; China
  - Source: CEIC and Haver Analytics.
- B1.4 Fixed asset investment total pipeline (Percent change, year-on-year)
  - Time markers: 2013M1, 2014M4, 2015M7, 2016M10, 2017M12
  - Categories: Under construction; Newly planned
  - Source: CEIC.
- B1.5 Consumer durable goods sales volume (In percent, year-on-year 4qma)
  - Time markers: 2012M12, 2014M4, 2015M8, 2016M12
  - Series: Automobile; Household washing machine; Air Conditioner
  - Source: CEIC.
- B1.6 Growth of real disposable income per capita (In percent, year-on-year ytd)
  - Time markers: 2014Q1, 2015Q2, 2016Q3, 2017Q4
  - Series: Mean; Median
  - Marker: 2018Q1
  - Source: CEIC.

### Note
- Final heading present in the source: "Table C1: Matching the Rebalancing Framework Used in This Note to the Authorities’ Own Targets and Recent Announcements" (table content not included in the supplied excerpt).

*Source: wp18243 - References*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp18243.pdf_