An End to China’s Imbalances?

Towards recoupling? Assessing the global impact of a Chinese hard landing through trade and commodity price channels

“…China thus had to rely more heavily on investment to maintain high growth rates, starting with a large stimulus in 2009, which drove the investment‐to‐GDP ratio to record highs (46.1% in 2012). This had important consequences on China's imbalances: external imbalances were sharply reduced, while at the same time, internal imbalances worsened (Ahuja, Chalk, Porter, N'Diaye, & Nabar, ). As argued by Lemoine and Ünal (), these internal imbalances are reflected in the imbalanced geographical structure of China's external trade: the decrease in the Chinese trade surplus between 2007 and 2012 was mainly due to a sharp increase in the trade deficit vis‐à‐vis commodity exporters, the investment surge being itself highly commodity‐intensive (see Figure A1 in the Appendix).…”

China's Economic Growth and Rebalancing

“…Out of these factors, strong commodity demand and the deterioration in the terms of trade seem to have been the most important. Ahuja et al (2012) estimate that the terms of trade deterioration and the increase in investment demand explained -3.8 and -2.6 percentage points (p.p.) respectively, of the total -7.3 p.p.…”

The Global Economic Imbalances: The Dangers of Not Rebalancing

“…While some see the recent drop in China's current account surplus (as a share of GDP), as evidence that rebalancing is already at work, such conclusions may be premature. Indeed, closer inspection suggests caution as recent IMF research shows that the fall in China's current account surplus is largely due to high levels of investment, a tepid global demand, and an increase in prices for commodity imports that has outpaced the rise in prices for manufactured goods (Ahuja et al 2012). Moreover, as Pettis has noted, China's distorted financial system imposes a "financial repression tax" on households and businesses.…”