China’s Economic Rebalancing and Global Implications

July 1, 2014

China’s economic growth surged to an unprecedented level during the decade of the 2000s shaking the global economy with its seemingly unstoppable exports and insatiable demand for imports of energy and resources.

However, it is during this dynamic period that the Chinese economy also became dangerously imbalanced. If not rectified, this imbalance could jeopardize China’s economic future altogether. This report identifies and explains the structural causes of the imbalance, many of which are rooted in China’s socialist past as well as its yet incomplete transition to the market economy.

While the previous leadership failed abysmally at tackling the imbalance, the new leadership of President Xi Jinping and Prime Minister Li Keqiang is likely to do much better. Low-end manufacturing has already started relocating to cheaper production locations such as Vietnam, Cambodia, Laos, Sri Lanka and Bangladesh.

A rebalanced Chinese economy will see stronger growth of private consumption, wages, and household spending in the coming years, with urban services becoming a new and powerful engine of growth and employment creation. China will also import more for household consumption compared with the past, thereby benefiting global producers in a wide range of consumer products and services. Thus, much is at stake for the global economy in the coming years as China works to rebalance its own economy.

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