Two Sides of the Same Coin? Rebalancing and Inclusive Growth in China

• Author: Il Houng Lee - Murtaza Syed - Xin Wang
• Pages: 5-8

IMFIMF

Volume 15, Number 2 June 2014

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B U L L E T I N

1

Two Sides of the Same Coin? Rebalancing and

Inclusive Growth in China

Il Houng Lee, Murtaza Syed, and Xin Wang

China’s remarkable growth

has been hailed a s the greatest

development story of all tim e.

However, its success is some-

what undermined by a shar p

rise in income inequality.

While most countrie s have also become less equal since 1990, the deterioration ha s

been especially seve re in China’s case and has left it among the m ost inequitable

societies in the world. Cou ld China’s growth model—with its emphas is on exports

and investment, and its more recent de pendence on credit—itself be at fault?

Since embarking on its reform and open ing-up policy, China has made

remarkable strides in l iing incomes and reducing poverty. On the eve of its

reforms, nearly 85 percent of its population lived on less th an $1.25 a day, the h

The Rise and Fall of Current Account Deficits

in the Euro Area Periphery and the Baltics

Joong Shik Kang and Jay C. Shambaugh

One feature of the economic cris is in Europe is

that a number of countries ran very l arge cur-

rent account deficits he ading into the crisis.

While increases in d omestic absorption explain

some of the deficits, the re were also important

movements in transfers and ne t income bal-

ances for many countries. W hen transfers declined, household s and firms bor-

rowed so as to maintain the same level of sp ending. This was part of a pers istent

failure to adjust to trade defic its, which, along with rising net-income payments,

led to growing current ac count deficits. Since th e crisis, tangible progress has bee n

made through lower wages and/or higher produ ctivity relative to trading partners

(“internal d evaluation”), contributing to narrowing def icits. Going forward, these

countries still need to cont inue adjustment to generate grow ing tradable sector

employment and to prevent imbalan ces from returning as output gaps close. Doing

so against a backdrop of auste rity, low growth in the euro area, and low inflation

in their trading partners ha s been very challenging.

In This Issue

1 The Rise and Fall of

Current Account Decits

in the Euro Area Periphery

and the Baltics

1 Two Sides of the Same

Coin? Rebalancing and

Inclusive Growth in China

6 Q&A: Seven Questions

on the Monetary

Transmission Mechanism

in Low-Income Countries

10 IMF Working Papers

12 Recommended Readings

from the IMF bookstore

13 IMF Economic Review

14 Staff Discussion Notes

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researchbulletin.

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Research Summaries

(continued on page 4)