The Rise of China

From the beginning my intention was to write an article about the causes of the Great Recession. The Great Recession refers here to the general economic decline in world markets that began in the United States in 2007. I started reading about the US credit boom that was accompanied by a housing bubble in the 2000s. Later I stumbled across what is referred to as “global imbalances” and I tried to understand the origin of these imbalances (i.e. current account surpluses in Asia and countries belonging to OPEC and a current account deficit in the US).

As I was reading about current account surpluses in Asia the word “rebalancing” frequently appeared in the context of China’s current account surplus. I continued investigating the concept of rebalancing and the causes behind the build-up of China’s domestic and external imbalances. Months later, I was reading about when Deng Xiaoping became the leader of China in 1978 and the beginning of China’s growth period. At that point, I decided to describe, using empirical data, the entire path from when China’s growth period began in 1978 up to the Great Recession in the United States.

The first part begins with an empirical background to economic growth in China since 1978 from a global perspective. This is followed by a discussion about the main drivers behind China’s extraordinary high growth rates and the impact on living standards and poverty reduction. Finally, an empirical investigation is undertaken to verify whether Wen Jiabao’s assessment of the Chinese economy, as “unsteady, unbalanced, uncoordinated and unsustainable” is accurate in the wake of the Great Recession.

The second and final part starts with a discussion about the concept of rebalancing and why it is necessary. A comparison with previous experiences from rebalancing in East Asia follows, including a discussion about how rebalancing of China’s economy may differ from its East Asian neighbors. Furthermore, the causes behind imbalances are examined before discussing appropriate policies for rebalancing China’s growth model. In addition, the discussion on ‘Policies for Rebalancing’ is applied to China’s reform agenda after the Third Plenum in 2013. Finally, the implications of rebalancing for China and rest of the World are investigated including a discussion about China’s role in the Great Recession.

The article can be found here: The Rise of China (pdf version)

A selection of comments from readers can be found here.

The author is grateful for comments and provision of useful information from Menzie Chinn (University of Wisconsin), Michael Christie (USC) and Michael Pettis (Peking University). In addition, the author greatly appreciate all helpful comments in reviewing the article from: Mikaela Crafoord (Stockholm University), Emilio S. Dermani (Sveriges Riksbank), Elsa Edberg (Stockholm University), Andrea Fabiani (European Central Bank), Olivia Hjertén Knutson (Stockholm University), Alexandra Holm (Stockholm University), Jakob Hörngren-Folch (Columbia University), Ali Jalilzadeh (Västerbergslagens utbildningscentrum, VBU), Monika Johansson (Stockholm University), Julia Jonsson (Stockholm University), Christer Romson Lande (Stockholm University), Emilene Reis Leite (Uppsala University), Jenny Lietz (Stockholm University), Henrik Nyberg (Stockholm University), Ulf Orrenius (Stockholm University), and Madeleine Lai Wikström (Stockholm University).