The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy

13 Pages Posted: 24 Jan 2013

See all articles by Guonan Ma

Guonan Ma

Bruegel

Robert N. McCauley

Bank for International Settlements (BIS)

Lillie Lam

Date Written: February 2013

Abstract

China's current account surplus widened from the late 1990s, and its private consumption fell to one third of gross domestic product (GDP). We examine these domestic and external imbalances from two perspectives: the saving‐investment balance and the effective renminbi exchange rate. China's large external surplus has arisen neither from anaemic consumption nor from weak investment but rather from the saved windfalls from favorable demographics, market liberalization, robust restructuring and World Trade Organization (WTO) accession. Looking ahead, as these windfalls fade, saving will subside. The exchange rate is already playing a supporting role in rebalancing the Chinese economy, and the real effective exchange rate based on unit labor costs has appreciated very sharply. Prospective savings‐investment and exchange‐rate developments point to a higher consumption share and a narrowing of China's current account surplus.

Suggested Citation

Ma, Guonan and McCauley, Robert N. and Lam, Lillie, The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy (February 2013). Review of International Economics, Vol. 21, Issue 1, pp. 72-84, 2013. Available at SSRN: https://ssrn.com/abstract=2206163 or http://dx.doi.org/10.1111/roie.12021

Guonan Ma (Contact Author)

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium
Belgium

Robert N. McCauley

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

No contact information is available for Lillie Lam

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