## IMF Survey: China's Difficult Rebalancing Act

_IMF News, September 12, 2007_

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## Bibliographic details
- Published: September 12, 2007

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### Overview and context
- China's economic miracle may be at risk unless the country relies more on domestic consumption.
- The question is whether rebalancing will occur naturally through the business cycle or require concerted policy actions by the Chinese government.
- The September issue of the IMF's Finance & Development magazine examines the rebalancing conundrum and changes in China's export structure.

### Macroeconomic achievements and concerns
- In the past 20 years, China has:
  - added about $2 trillion to world GDP;
  - created 120 million new jobs;
  - pulled 400 million people out of poverty.
- These achievements are framed as equivalent to:
  - adding a country of the economic size of Portugal every year;
  - creating as many new jobs each year as the total number of people employed in Australia;
  - eradicating poverty in Ethiopia, Nigeria, Tanzania, and Zambia combined.
- Recent performance:
  - China has grown more than 10 percent annually while keeping inflation below 3 percent.
  - Today, China is the fourth largest economy in the world and the third largest trading nation.
- Growing unease: policymakers and observers worry that growth is "unstable, unbalanced, uncoordinated, and unsustainable" (Premier Wen Jiabao).

### Export structure and external dependence
- Exports have increased 10-fold over the past 15 years as China became the third-biggest exporter behind Germany and the United States.
- China is shifting from low-tech assembly of imported inputs to selling increasingly complex products that rely heavily on domestic inputs.
- As China moves away from being the low-cost, low-tech assembler, its fortunes become more closely tied to those of the global economy.
- The domestic content of China's exports is increasing, raising external dependence.

### Rebalancing pathways and scenarios (from Finance & Development articles)
- China's Rebalancing Act (Jahangir Aziz and Steven Dunaway)
  - A rebalancing of the economy is unlikely to happen on its own.
  - Needed adjustments include:
    - monetary policy;
    - price liberalization;
    - financial market reform;
    - changes in government expenditure policies.
- Solving China's Rebalancing Puzzle (Jonathan Anderson)
  - Market forces will operate "naturally."
  - Real rebalancing involves a slowdown in investment and a drop in net exports rather than a further pickup in urban consumption.
  - This scenario is described as "by far the most likely scenario through the end of the current decade."
- China’s Export Boom (Mary Amiti and Caroline Freund)
  - China is moving out of agriculture, apparel, and textiles into electronics and machinery.
- China’s Growing External Dependence (Li Cui)
  - China is no longer just an assembler of imported inputs; domestic content of exports is rising and economic fortunes are more tied to the global economy.
- Point of View — China’s Approach to Reform (Hu Xiaolian)
  - Describes efforts to promote consumption and consumer credit, reform the exchange rate regime, and improve macroeconomic management.

### Policy implications and areas of reform
- To achieve rebalancing toward consumption, key policy areas identified include:
  - monetary policy adjustments;
  - price liberalization;
  - financial market reform to support domestic consumption and credit growth;
  - changes in government expenditure policies to rebalance fiscal support;
  - promoting consumption and consumer credit;
  - reforming the exchange rate regime;
  - improving macroeconomic management.

*IMF Survey: China's Difficult Rebalancing Act — September 12, 2007*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [F&D on China](http://www.imf.org/external/pubs/ft/fandd/2007/09/index.htm)
- [IMF and global imbalances](https://www.imf.org/external/pubs/ft/survey/so/2007/SurveyartA.htm)
- [China's role in Africa](https://www.imf.org/external/pubs/cat/longres.cfm?sk=21282.0)
- [Explaining China's low consumption](https://www.imf.org/external/pubs/cat/longres.cfm?sk=21026.0)
- [Pension reform in China](https://www.imf.org/external/pubs/cat/longres.cfm?sk=20671.0)
- [Investment efficiency in China](https://www.imf.org/external/pubs/cat/longres.cfm?sk=20197.0)
- [China's Rebalancing Act](https://www.imf.org/external/pubs/ft/fandd/2007/09/aziz.htm)
- [Solving China's Rebalancing Puzzle](https://www.imf.org/external/pubs/ft/fandd/2007/09/anderson.htm)
- [China's Export Boom](https://www.imf.org/external/pubs/ft/fandd/2007/09/amiti.htm)
- [China's Growing External Dependence](https://www.imf.org/external/pubs/ft/fandd/2007/09/cui.htm)
- [China's Approach to Reform](https://www.imf.org/external/pubs/ft/fandd/2007/09/xiaolian.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar0912a_