Rebalancing the Chinese Economy to Sustain Long-Term Growth

To sell the cow and drink the milk: How could China harmonize its growth and risk?

“…The last aspect is technological restructuring, which means upgrading the technological structure from production based and the catching‐up level to R&D based and innovation leadership. The related literature (Altenburg et al, 2008; Chen & Groenewold, 2018; McKay & Song, 2012; Pei, 2012) has recommended promoting the development of its own advanced core technology or innovative leadership products while using their quality of high value added, applicability and diffusibility to replace the extensive mode of factors and production in the past, in turn driving sustainable economic growth.…”

“…Another aspect is regional rebalancing, which involves the cross‐regional reallocation and readjustment to the differences in resource endowment and development stages. The literature (McKay & Song, 2012, 2013; Pei, 2012) has advised promoting industrial upgrading in highly developed regions and transplanting the existing industries and experience to less developed regions. These measures will help to enhance the economic level and the room for the creation of new added value for the urban areas on the one hand and push forward the industrialization and urbanization of the suburbs on the other hand to drive the overall advancement.…”

Foreign Exchange Accumulation and the Entrapment of Chinese Monetary Power: Towards a Balanced Growth Regime?

“…China's exchange rate policy is therefore not just a 'predatory' strategy to boost its export competitiveness (Krugman 2009); it also reduces the purchasing power of Chinese wages while subsidising the export sector and the SOE sector. Although it is well-established that its tightly managed, inflexible exchange rate aims to bolster the cost competiveness of its export sector, it is less documented that it confers an added cost advantage to the import-competing SOEs sector as well, leading -as mentioned above -to rising domestic market shares of many SOEs -especially those operating in heavy industry and producing machinery and capital goods (Anderson 2009;McKay and Song 2012). Importantly, the PBOC needs to sterilise the accumulation of foreign exchange reserves ensuing from its currency policy in order to inhibit an appreciation of the real exchange rate: selling central bank bills to and/or raising the reserve requirements of Chinese banks must prevent reserve accumulation from spilling over into an unwarranted increase of the domestic money supply, which would boost domestic prices and wages and shift demand to imports.…”