Inner Workings of the Chinese Economy
36 Pages Posted: 21 Mar 2016
Date Written: March 17, 2016
The recent economic downturn in China has severely impacted the global economy. Chinese GDP growth has slowed sharply; corporate-debt ratios are unprecedentedly high; the equity markets are exceptionally volatile; the renminbi has depreciated and capital flight has drained China's forex reserves at an alarming rate. This paper investigates the root causes of all these events and shows the complexities and difficulties, such as the thorny trilemma (impossible trinity) problem, faced by the policymakers in their attempt to fix these problems. The paper then discusses some feasible policies Chinese officials can consider in dealing with the current situations and some structural reforms to steer away from these problems.
Keywords: China's economy; yuan devaluation; capital flight; forex reserves; impossible trinity; SOEs.
JEL Classification: E50, E61, F32, F34, O53
Suggested Citation: Suggested Citation