China s Rebalancing Act

Rebalancing the Eurozone

Economic Rebalancing Acts

Asia s Rebalancing Act

But it is doubtful that China can achieve the consumption driven rebalancing that it seeks. After all, no high performing East Asian economy has achieved such a rebalancing in the past, and China has a similar growth model.

Against this background, South Korea s new growth strategy should aim to achieve both a demand side rebalancing and supply side productivity increases.

China s rebalancing is apparent, first and foremost, in the export sector. Export growth has slowed from its 2001 2008 average of 29 annually to below 10 , making foreign demand a far less critical engine of growth.

Rebalancing the State s Balance Sheet

Rebalancing the US China Economic Relationship

Just as China must embrace slower growth as a natural consequence of its rebalancing imperative, the rest of the world will need to figure out how to cope when it does.

Technological progress has trumped obstacles to economic growth. Periodic political rebalancing, sometimes peaceful, sometimes not, has ensured that the vast majority of people have benefited, albeit some far more than others.

For China, accepting lower growth provides a crucial opportunity to support stable and sustainable development. If China s leaders stay the course of reform and rebalancing, the entire global economy will be better off.

BEIJING China s economy is, at long last, undergoing a rebalancing, with growth rates having declined from more than 10 before 2008 to roughly 7.5 today. Is this China s new normal, or should the country anticipate even slower growth in the coming decade?

But, at a time of weakening economic performance, China cannot afford an implosion of the real estate sector, which accounts for at least 30 of overall growth. Indeed, though China s government has expressed its willingness to sacrifice some growth in its pursuit of structural reform and rebalancing, the impact of a housing market collapse on the financial sector would cause growth to slow beyond the acceptable limit.

It is also about structural reform and rebalancing, which comes at a cost. Achieving a sustainable pattern of growth requires choices that affect not just the level of aggregate demand, but also its composition for example, investment versus consumption.

On their own, currency markets will not bring about the growth enhancing global economic rebalancing that is needed. Better policies at the national, regional, and global levels are also essential and that requires better politics.

The formal sessions played out predictably, placing great emphasis on the coming structural transformation of China s growth model a colossal shift from the all powerful export and investment led growth of the past 32 years to a more consumer led dynamic. There is now broad consensus among China s senior leadership in favor of such a rebalancing.

The Chinese rightly understand that they must focus more on the quality of growth rebalancing their economy away from exports and toward domestic consumption than on sheer output. But, even with China s change in focus, and despite adverse global economic conditions, growth of around 7 should sustain commodity prices, thereby benefiting exports from Africa and Latin America.

RMB appreciation should have started earlier and at a faster pace, when China s trade surplus was much smaller and its growth was much less dependent on exports. Delay has made current account rebalancing via RMB appreciation costly.

The final quarter of 2004 saw remarkable success in rebalancing the budgets of the Government of Bosnia and Herzegovina.

The final quarter of 2004 witnessed remarkable success in rebalancing the budgets of the Government of Bosnia and Herzegovina.

But the central government enjoyed a 28 increase in revenues over the last year, and has more than 3 trillion in foreign exchange reserves. In addition, the moderation of inflationary pressure as a result of slower growth and cooling global commodity markets will allow Chinese and other Asian policymakers to shift their focus from containing economic overheating to rebalancing growth.

Even if the euro crisis is resolved, austerity in Europe, along with anemic growth or worse in the US, will mean a slowdown in export dependent Asia. But Asia s economies can still grow much faster than the developed West if they respond to prolonged stagnation by rebalancing their growth toward internal demand, especially household consumption.

If fiscal rebalancing is accomplished in part by cutting investment, medium and longer term growth will suffer, resulting in fewer employment opportunities for younger labor market entrants. Sustaining investment, on the other hand, has an immediate cost it means deferring consumption.

And an unwillingness to trade away export led growth is having the same effect on the East s surplus countries (especially China). As a result, emerging countries, according to the IMF, have been pressed to carry a disproportionate burden of demand rebalancing since the crisis.

Governments role will be different in countries like China, where officials will guide a shift from dependence on external sources of growth to more balanced demand. As this requires some fundamental domestic re alignments, the rebalancing will be both gradual and non linear at times.

But at the margin, economic growth is heavily skewed toward exports and fixed investment as the primary means of absorbing surplus labor and spreading prosperity. In a post crisis world impaired by America s zombie consumers export led Asia is in serious need of a pro consumption rebalancing.

Asia s ongoing transformation rooted in the long term conviction that more equitable, inclusive, and increasingly knowledge led growth will help to reduce poverty and offer greater prosperity to its citizens requires a short term commitment to mitigating any global economic slowdown caused by new shocks. It also demands determined efforts to reduce global imbalances by rebalancing Asia s own sources of growth.

Moran said The focus remains on rebalancing, shifting focus or whatever you want to describe it.

But the challenge of rebalancing the global economy is also closely connected to central banks monetary policies. With credit and asset bubbles slowly but surely reappearing, the authorities goal should be to keep growth on a balanced and sustainable path and thus to discouraging excessive risk taking.

Prospects for these two sources of growth will not only influence the vigor, or lack thereof, of any recovery they could well be decisive in bringing about an important shift in the US growth model. The 70 30 split underscores the challenge the US must face up to a fundamental rebalancing weaning itself from excessive reliance on internal demand and drawing greater support from external demand.

The rebalancing of growth away from fixed investment and toward private consumption is occurring too slowly, because every time annual GDP growth slows toward 7 , the authorities panic and double down on another round of credit fueled capital investment. This then leads to more bad assets and non performing loans, more excessive investment in real estate, infrastructure, and industrial capacity, and more public and private debt.

And we know how to do that accommodative monetary policy fiscal adjustment in all advanced economies that includes concrete and realistic plans to reduce debt over the medium term, but does not undercut short term growth completing the banking sector cleanup and reforms to boost productivity and growth potential. All of this should be complemented by a rebalancing of global demand toward dynamic markets, including emerging economies.

Nowhere is that more evident than in China. With private consumption having fallen to a record low of 35 of GDP in 2008 (fully ten percentage points below the Asian norm), China faces major rebalancing imperatives all the more urgent if post crisis consumption growth in the West remains weak.

Nevertheless, despite the merits of its analysis, the IMF underestimates China s progress in rebalancing. In my view, China s rebalancing is more genuine and more fundamental than the Fund recognizes, and the prediction of an eventual rebound in China s external surplus GDP ratio will most likely turn out to be wrong.

This convergence will contribute to more sustainable economic growth, with Asia s economies rebalancing toward domestic demand, especially household consumption, and thereby becoming less vulnerable to external shocks. Given the decline in export demand since the global economic crisis, this shift could not be timelier.

Unfortunately, China s data are not nearly as reliable as those measuring a developed economy, which makes it difficult for anyone to be sure of what is happening. Electricity usage is typically one of the most reliable measures of growth but, with the economy shifting toward services, and with many energy intensive industries such as cement and steel production slowing down, it is perfectly possible that slow electricity growth is simply a symptom of rebalancing.

I myself so to speak introduced the Slovenian chairmanship of the OSCE by saying that we need three R's reform, revitalization and rebalancing.

Nonetheless, the PBOC s tactical decision is not without potential pitfalls not least because interest rate cuts encourage the extension of more credit at a time when China is trying to wean itself from debt intensive growth. A key challenge will be to avoid escalating credit risk, which could undermine the process of reform and rebalancing.

The key to realizing that opportunity lies in access to Chinese markets all the more significant in light of China s upcoming pro consumption rebalancing. Historically, China has had an open development model, with imports running at 28 of GDP since 2002 nearly three times Japan s 10 import ratio during its high growth era (1960 1989).

In these circumstances, we need collective action for global recovery along four main policy lines repair, reform, rebalancing, and rebuilding.

Even with significant policy support, however, most of the smaller Asian economies Taiwan, Thailand, Singapore, and even South Korea will not be able to replace external demand with internal demand to the same extent that China can. So, even with rebalancing, exports will remain a significant determinant of their growth, and China is already their major export market.

Add to that Xi s unprecedented anti corruption campaign, and there is no turning back on China s road to rebalancing and structural change.

Unfortunately, the IMF s rebalancing efforts are proceeding at a glacial pace. At the World Bank, nothing seems to be happening at all.

By allowing the private sector to flourish, and encouraging the shift toward a services oriented economy, China s government could bolster employment growth and, in turn, domestic consumption. As Li seems to recognize, structural rebalancing is needed not only to improve Chinese citizens wellbeing, but also to bolster economic and social stability at a time of profound global uncertainty.