DP5403 Rebalancing Growth in China: A Three-Handed Approach

Author(s): Olivier J Blanchard , Francesco Giavazzi

Publication Date: January 2006

Keyword(s): China , economic development , international economics

JEL(s): E2 , O53

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP5403.asp

Our paper is an attempt to define the contours of the right macroeconomic strategy for China. In a nutshell, we believe that the package includes a decrease in saving, with a focus on private saving, an increase in the supply of services, in particular health services, and an appreciation of the RMB. This is why we refer to this strategy as a 'three-handed approach': action on the fiscal and budgetary front, accompanied by currency revaluation. We start by asking how the Chinese economy got to where it is - what the strategy has been since the beginning of the reforms, and what the main characteristics of the economy are today. We then ask what is the desirable path for the future, and which are the main policy tradeoffs implied by such a path. Finally, we put the various pieces together to describe what we believe is a consistent policy package.