Rebalancing China's economy : modeling a policy package

Abstract

This paper discusses how China can rebalance its pattern of growth by implementing a package of policies. The authors first characterize the distinct features of China's pattern of growth and the specific policies they think are behind it. It identifies the key contributions of these distinct features to China's growth, as well as some downsides-issues that are currently of concern to China's government: high saving and investment, high resource and energy intensity, environmental impact, inequality, the small role of private consumption, and a large and growing external imbalance. The paper then discusses a package of policy reforms that can address most of the downsides. It looks at how China may grow in the coming decades, modeling a few scenarios with a computable general equilibrium model. The first scenario is on past trends, extrapolating past trends and policies into the future. The second one is a rebalanced scenario, where the author implements the package of policy reforms. The rebalanced scenario looks significantly better on the dimensions currently of concern to the government, while achieving broadly comparable overall growth. The modeling work suggests that, with the right package of policy reforms, it is possible for China to continue to grow rapidly while relying less on industry and investment, and more on services and efficiency gains, including via reallocation of labor and capital.

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