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IMF Book Launch Rebalancing Growth in Asia Economic Dimensions for China

IMF Book Launch Rebalancing Growth in Asia Economic Dimensions for China Presentation at Carnegie Endowment for Peace March 9, 2011 Vivek Arora IMF, Asia and Pacific Department These are the views of the presenter and not those of the IMF, its Executive Board, or its Management. Authors.

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IMF Book Launch Rebalancing Growth in Asia Economic Dimensions for China

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  1. IMF Book Launch Rebalancing Growth in Asia Economic Dimensions for China Presentation at Carnegie Endowment for Peace March 9, 2011 Vivek Arora IMF, Asia and Pacific Department These are the views of the presenter and not those of the IMF, its Executive Board, or its Management.

  2. Authors • Steve Barnett • Ray Brooks • Marcos Chamon • Kai Guo • Sonali Jain Chandra • Adil Mohommad • Papa N’Diaye • Malhar Nabar • Nathan Porter • Murtaza Syed • Olaf Unteroberdoerster

  3. Asia’s success During 1980-2010, annual GDP growth in emerging Asia averaged 7 percent. 8-fold increase in GDP. Accounts for ¼ of world economy. Success based on outward-oriented growth. (E.g., China’s “reform and opening up”). But, over time, unduly reliant on external demand. Need now to develop private domestic demand.

  4. Some questions and issues • Why does Asia need rebalancing? • What does rebalancing entail? • Challenges for Asia • Boosting investment • Managing corporate savings • China’s challenge • Boosting private consumption • Prospects for global rebalancing • Conclusions

  5. Why does Asia need rebalancing? Global imbalances remain sizable Global Imbalances (Percent of World GDP)

  6. Why does Asia need rebalancing? Asia is highly dependent on external demand Share of Export Value Added in GDP (percent) Selected Asia: Average Contribution to Real GDP Growth (percent of real GDP growth)

  7. Why does Asia need rebalancing? Exports are concentrated in a few industries, and they influence investment patterns Asia: Share of Medium and High-Tech Exports in Total Exports (percent; average over 2000-08) Selected Asia: Share of Export Value Added in GDP (percent of GDP)

  8. What Does Rebalancing Mean? Rebalancing will mean different things for different countries: higher consumption in some, higher investment in others Private Consumption (percent of GDP; 2004-08 average) Asia: Investment (percent of GDP; 2004-08 average)

  9. Challenges for Asia Private investment would be facilitated by better infrastructure… Contribution to Change in Private Investment (In pct. point of GDP) Effect of Infrastructure on Private Investment (In percent of GDP)1/ Electricity Generation (Median; in kilowatt hours per capita) 1/ Assuming a 1 percent increase in infrastructure

  10. Challenges for Asia …and deeper financial markets Relative Changes in Fundamentals (Percentage point differential in change in medians between 1990-97 and 2000-07) Selected advanced economies: Venture Capital Investment (In percent of GDP)

  11. Challenges for Asia Financial development could also provide room for Asian firms to reduce corporate saving Effect of Financial Liberalization on Corporate Savings (Regression coefficients) Financial Reform Index, 2005 Emerging Asia Corporate Savings (Share in world savings; in percent)

  12. China’s Challenge In China, export-led growth may face constraints, highlighting need for more domestic demand Selected Asia: Export market share (In percent of world exports) China: Consumption and Disposable Income (In percent of GDP)

  13. Prospects for global rebalancing Over the medium-term, imbalances may persist in the absence of policy measures Global Imbalances (Percent of World GDP) Contribution to Growth in World Imports of Consumer Goods 1 (5-year rolling average over 2004-08)

  14. Prospects for global rebalancing Coordinated policy packages offer the best hope for successful rebalancing(real GDP, deviation from Baseline) Fiscal policies designed to reduce deficits and raise potential output in advanced economies (fully credible in 2013) Additional effects of structural reforms designed to raise potential output

  15. Conclusions • Asia’s growth remains generally export-dependent • But the rebalancing challenge varies across economies. • Some (in particular China) will need to boost consumption, others will have to focus on investment. Many would need reforms to boost services-sector growth. • Comprehensive and coordinated reforms are needed to achieve successful rebalancing in Asia and globally.

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