Tipping the Scales—Rebalancing Growth in Asia
IMF Blog, April 29, 2011
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- Authors: Anoop Singh
- Published: April 29, 2011
Current account surpluses
- The center of global economic growth is moving from the West to Asia, in particular emerging Asia and China.
- Heavy reliance on exports has contributed to a sharp rise in external current account surpluses in recent years from broadly balanced positions in the 1980s and 1990s.
- The global financial crisis underscored the urgency of reducing vulnerability to swings in global demand caused by outward-oriented growth.
Sources of Asia’s growth
- Over the last 30 years, the Asian economy has grown by over 7 percent each year; it has doubled in size every decade.
- This success has been based in large part on outward oriented growth strategies—giving market forces greater play and encouraging the production of tradable goods.
- China’s “reform and opening up” policy, launched in 1978, is highlighted as a prominent example of outward-oriented growth.
- Over time, awareness has grown that export-led growth needs to be balanced by a second engine of growth: stronger domestic demand, particularly private domestic demand.
How then to raise domestic demand?
- Rebalancing will mean different things for different countries because reasons for relatively weak domestic demand vary across the region.
- In China, low private consumption as a share of GDP is a major factor.
- In other economies, private investment has been low since the late 1990s.
- Policies will need to differ across countries and be comprehensive and country-specific.
- Financial sector reform is an important issue:
- Improved access to financial services can boost household consumption.
- Improved access can alleviate constraints faced by firms, particularly smaller ones and those seeking to invest in the services sectors.
- China-specific considerations:
- Turning away from export-oriented growth could lead to job losses in the short term, but employment would rise in the longer-term as more jobs are created in domestic-demand oriented sectors.
- Weak consumption, or high household saving, in China is not presented as culturally determined; it may be responsive to policies such as higher public spending on health or improving households’ access to financial services.
- Social imbalances:
- Better provision of social services could play a critical role in boosting household consumption in China.
- Inequality and a lack of social safety nets are concerns across many emerging economies in Asia.
Will rebalancing work?
- Rebalancing will take time and requires comprehensive, tailored policies.
- Hong Kong’s successful transformation from a small-scale manufacturer to a global logistics and finance hub is offered as an example that economies should embrace changes that make them more sustainable.
Anoop Singh, April 29, 2011
Content in this bundle
- 让天平指针向中间移动，使亚洲增长实现再平衡; 作者：阿诺•辛格; 2011年4月29日
- 変化－アジアの成長の再調整, iMFdirect, アヌープ・シン、2011年4月29日
