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The Roles of Saving, Investment and the Renminbi in Rebalancing the Chinese Economy
Author(s) -
Ma Guonan,
McCauley Robert,
Lam Lillie
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12021
Subject(s) - economics , renminbi , current account , exchange rate , investment (military) , consumption (sociology) , monetary economics , liberian dollar , balance of trade , international economics , liberalization , restructuring , market economy , finance , social science , politics , law , political science , sociology
C hina's current account surplus widened from the late 1990s, and its private consumption fell to one third of gross domestic product ( GDP ). We examine these domestic and external imbalances from two perspectives: the saving‐investment balance and the effective renminbi exchange rate. C hina's large external surplus has arisen neither from anaemic consumption nor from weak investment but rather from the saved windfalls from favorable demographics, market liberalization, robust restructuring and World Trade Organization ( WTO ) accession. Looking ahead, as these windfalls fade, saving will subside. The exchange rate is already playing a supporting role in rebalancing the Chinese economy, and the real effective exchange rate based on unit labor costs has appreciated very sharply. Prospective savings‐investment and exchange‐rate developments point to a higher consumption share and a narrowing of C hina's current account surplus.