Rebalancing Growth in China: A Three-Handed Approach
Olivier J. Blanchard
National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics
Bocconi University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
November 25, 2005
MIT Department of Economics Working Paper No. 05-32
Our paper is an attempt to define the contours of the right macroeconomic strategy for China. In a nutshell, we believe that the package includes a decrease in saving, with a focus on private saving, an increase in the supply of services, in particular health services, and an appreciation of the RMB. This is why we refer to this strategy as a three-handed approach: action on the fiscal and budgetary front, accompanied by currency revaluation.
We start by asking how the Chinese economy got to where it is - what the strategy has been since the beginning of the reforms, and what the main characteristics of the economy are today. We then ask what is the desirable path for the future, and which are the main policy tradeoffs implied by such a path. Finally, we put the various pieces together to describe what we believe is a consistent policy package.
Number of Pages in PDF File: 38
Keywords: China, growth, appreciation, services
JEL Classification: E2, O53
Date posted: November 30, 2005