China's Rebalancing Explained in 6 Charts

IMF Blog, September 6, 2016

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Rebalancing denotes a structural transformation across four inter-related dimensions: external, internal, environmental, and distributional.
Overall progress since the global financial crisis has been mixed:
- Strong on external rebalancing (switching from external demand to domestic demand).
- Uneven on internal, environmental, and distributional dimensions.
Key statistic: the current account surplus fell from the pre-crisis peak of 10 percent of GDP to around 3 percent in recent years.
Exports are no longer driving growth.

Until 2011, reduction in the external imbalance coincided with a growing internal imbalance as the investment to GDP ratio rose due to strong fiscal stimulus.
Since 2012, internal rebalancing from investment to consumption has made headway.
Notable acceleration in 2015: consumption is now contributing more than two thirds of GDP growth.

Progress has lagged on reducing reliance on credit.
Credit intensity (the amount of new lending provided for each additional unit of output) has more than doubled since the global financial crisis.
Risk highlighted: absent decisive corporate restructuring and reform of state-owned enterprises, credit to the nonfinancial private sector will likely rise continuously, increasing the risk of disruptive adjustment.

Energy intensity of output has fallen, but air pollution remained very high in cities.
Income inequality remains very high.
Labor’s share of GDP is rising.

With population ageing and envisaged strengthening of social safety nets, household savings are expected to fall gradually and consumption to rise.
Expected outcome: investment can moderate while keeping the current account balance broadly stable.
The services sector is likely to increase in importance, helping reduce environmental pressure and increase labor’s share in national income.

Source: China’s Rebalancing Explained in 6 Charts — Longmei Zhang, September 6, 2016.

用六张图解释中国的再平衡; iMFdirect博客; 2016年9月6日
- 用六张图解释中国的再平衡; iMFdirect博客; 2016年9月6日 (Markdown version)
- 用六张图解释中国的再平衡; iMFdirect博客; 2016年9月6日 (PDF)