Chapter 14
Global Rebalancing Will Not Be Easy
China’s impressive economic performance in the years of the global, or rather Western, downturn resulted first and foremost from its structural and macroeconomic strength.
The role of domestic demand was particularly important. A dramatic plunge of exports was largely offset by an increase in investment and dynamism of private consumption, both supported by the 4 trillion yuan government stimulus package. Similar developments could be traced in India, Indonesia, Vietnam, and a number of other large developing economies.
Decoupling raised expectations about the global economy rebalancing in the postdownturn period.
Can the Idea Work?
The global economy rebalancing idea, advocated by President Obama and other Western leaders and actively promoted by the IMF, is based on the presumption that Americans and Europeans should increase their savings, while the Chinese (as well as people in other large emerging countries) should save less, consume more, and, apparently, buy more Western products. This allegedly will help to get over or at least to substantially reduce global trade imbalances, especially China’s surplus and America’s deficit. China’s abnormally huge foreign exchange reserves will also decrease. The Chinese government is urged to encourage household consumption in various ways including the appreciation of the yuan and development of the social security system. The stronger yuan will reduce prices for imported consumer products. ...
