The economic rise of China: threat or opportunity?

China's economy is opening up to the outside world. This worries those who fear the huge pool of low-cost labor will drain jobs from U.S. shores, and less expensive goods will spark trade problems. The author points out that China's untapped market presents huge opportunities for U.S. businesses that would surely outweigh any loss of jobs, and also that the sort of jobs that would move to China left the U.S. a long time ago. And with respect to fair trading practices, China has made much progress.China ; Economic conditions - China

China’s Consumption Driven Growth Path

International Development,

The Sustainability of China's Recovery from the Global Recession

China faces major challenges in sustaining its economic growth in a period of weak global recovery, particularly in Europe. In 2009 China's net exports of goods and services dropped precipitously, resulting in a substantial drag on economic growth. To overcome this drag China launched a massive stimulus program, financed largely with bank credit. While it is now widely understood that China was the first globally significant economy to begin to recover from the crisis, critics nonetheless increasingly charge that the stimulus program has substantial flaws and that China's early economic recovery cannot be sustained. One prominent critic has gone so far as to suggest that the stimulus has created a debt-fueled bubble that will collapse, causing China's growth to plunge to only 2 percent. Nicholas Lardy suggests these criticisms are exaggerated. Contrary to repeated criticisms, this stimulus had a substantial consumption component and focused on investment in infrastructure rather than expanding capacity in traditional industries such as steel. But the stimulus did come at a cost insofar as it led to a substantial increase in the borrowing of local investment companies, which local governments will have to ultimately repay, but the infrastructure provided through these companies likely will contribute to China's sustained economic growth and thus to increasing government tax revenues as well. The authorities recognize flooding the economy with more credit is not the way forward and that they will have to take strong additional policy initiatives to sustain economic growth. These include raising the prices of inputs such as water, electricity, and other resource products as well as introducing realistic environmental taxes and fees. These reforms, as well as a more flexible exchange rate, would reduce the distortions that for much of the past decade have favored industrial growth and exports over services and consumption and would contribute to sustaining China's impressive long-term economic growth.

China: Toward a Consumption-Driven Growth Path

China's decision to transition away from growth driven by investment and a growing global trade surplus toward one more dependent on domestic consumption is laudable. But to date China's initiatives have been too modest to change its underlying growth dynamic. China's external surplus continues to balloon and, short of a US recession, seems likely to expand further in 2007. Household consumption as a share of GDP continued to decline in the first half of 2006. Despite much lip service to increasing budget outlays on social services, little evidence of a fundamental shift in government spending has emerged. So Chinese households' precautionary saving persists. There is little evidence of a more flexible exchange rate and increased independence of monetary policy that would allow higher domestic interest rates. These and other factors suggest that China's transition toward more consumption-driven growth is likely to be substantially delayed.

Financial Repression in China

The Chinese banking system has improved significantly over the past decade, but in one critical respect, it appears to have regressed. The People's Bank of China controls interest rates in a way that has led to significant financial repression--low and now negative real return on deposits--as inflation has risen in recent years. This distorted interest rate structure is a significant obstacle to further reform of the financial system and to sustaining China's rapid economic growth. Financial repression costs Chinese households about 255 billion renminbi (US$36 billion), 4.1 percent of China's GDP, and a fifth of it goes to corporations, one-quarter to banks, and the government assumes the rest. Financial repression reduces the cost to the government of sterilized intervention to sustain China's undervalued exchange rate relative to the cost it would face if interest rates were liberalized. But the financial repression that facilitates an undervalued exchange rate imposes substantial, if partially hidden, costs on China's economy. It has led to lending rates that are far too low, resulting in excess demand for bank loans and increased use of quantitative targets to control credit growth. These have led to a less efficient allocation of capital through the banking system and to a huge underground financial market. Financial repression is also contrary to the government's long-term goal of developing a commercial banking system. It has also depressed the growth of household income, undermining the government's goal of transitioning to a growth path that relies less on investment and net exports and more on domestic consumption. Finally, financial repression seriously hinders the development of a fully and efficiently functioning capital market.

What Kind of Landing for the Chinese Economy?

Rarely has the outlook for the Chinese economy been so contested. Th e fi nancial press widely quotes three alternative perspectives on the short- and medium-term outlook. One school argues that the Chinese government's recent eff orts to rein in overly rapid growth are working and that the economy is now on a glide path to what is referred to as a soft landing. While "soft landing" is usually not fully defi ned, its chief feature in this case is that Chinese economic growth slows modestly from its current pace of 9 to 10 percent to around 8 percent and that the rate of job creation does not slow enough to constitute a major political challenge for the regime. At the other end of the spectrum is the hard landing school, which argues that the authorities to date have not tightened suffi ciently, that loan and investment growth remain excessive, and that the authorities soon will be forced to take more drastic action that will trigger a sharp correction. Finally, the no landing school argues that China's eff orts to slow growth modestly are misguided since the economy was not overheating in 2003 and early 2004. In this view, China is in the early stages of a secular boom that has several additional years to run.

China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity

This paper argues that the way in which China is portrayed in the revived Bretton Woods thesis (BW2) is not consistent with several important trends in, and features of, the Chinese economy; nor does the strategy in the BW2 seem sensible for China's long-term economic development. Whether it is the behavior of China's real exchange rate, the costs of sterilizing large reserve inflows, the role that FDI plays in financing China's fixed asset investment, the participation of foreign firms in China's exports and in the ownership of export industries, or the political economy of trade protectionism in the United States, the BW2 does not provide a good explanation either for how China has behaved in the past or how it should behave in the future. We conclude that the BW2 does not provide a persuasive story for why large US current account deficits and undervalued Asian exchange rates can or should continue for the next decade or longer.China's exchange rate policies, revived Bretton Woods system, Chinese economy

Debating China's Exchange Rate Policy

More than two and a half years have passed since China announced a number of changes to its foreign exchange regime in July 2005. During this period, the debate on the pros and cons of China's exchange rate policy, which had begun in earnest several years earlier, intensified. This important new book, based on an Institute conference in October 2007, takes stock of exchange rate policy in China and identifies the major policy options going forward. Specific proposals presented in the volume address how best to eliminate any misalignment of the renminbi; how best to reduce pressures emanating from the sterilization of large reserve accumulation; how best to make capital flows the ally--not the enemy--of exchange rate policy; and what institutional arrangements and policy guidelines to put in place to reap the greatest benefits from management of China's large foreign exchange reserves. Leading experts--including three from China--have contributed to the volume. The keynote address by Wu Xiaoling, deputy governor to the People's Bank of China at the time of the conference, is also presented in the book.

China Town Hall: Local Connections, National Reflections

China's rapid development and Sino-American relations have a direct impact on the lives of just about everyone in the United States. CHINA Town Hall: Local Connections, National Reflections is a national day of programming designed to provide Americans across the United States and beyond the opportunity to discuss these issues with leading experts. The eighth annual CHINA Town Hall will be held on October 16, 2014, at 7 p.m. The National Committee on United States-China Relations is pleased to present this program, which will feature a live webcast with President Carter, followed (or preceded) by local presentations from on-site China specialists addressing topics of particular interest to the community. Each program is co-sponsored by the National Committee and a local organization(s). CHINA Town Hall is generously underwritten by the Starr Foundation.Ohio State UniversityMershon Center for International Security StudiesThe Institute for Chinese StudiesNational Committee on U.S.-China RelationsEvent Web pag

China's Rise: Challenges and Opportunities

The global economic crisis has made clear China's importance and expanding role on the world stage. China's Rise: Challenges and Opportunities, explains actions both China and the United States can take that will not only maximize the opportunities for China's constructive integration into the international community but also help form a domestic consensus that will provide a stable foundation for such policies. This book is unique in that it analyzes the authoritative data on China's economy, foreign and domestic policy, and national security. China is confronting domestic challenges that are in many ways side effects of its economic successes, while simultaneously trying to take advantage of the foreign policy benefits of those same successes. * The book from The China Balance Sheet Project, a joint, multiyear project of the Center for Strategic and International Studies and the Peterson Institute, discusses China's military modernization, China's increasing soft power influence in Asia and around the world, China's policy toward Taiwan, domestic political development, Beijing's political relations with China's provincial and municipal authorities, corruption and social unrest, rebalancing China's economic growth, the exchange rate controversy, energy and the environment, industrial policy, trade disputes, and investment issues. The paperback book features a new introduction that addresses events since fall of 2008 and provides context for the book in light of those events.