Cost Distortions and Structural Imbalances in China

This paper attempts to explain the fundamental cause of China＇s growing imbalanee problems. Economic data confirm that the key structural imbalance problems, such as overinvestment, large current account surpluses, low consumption share of GDP and income inequality, have all deteriorated over the past few years, despite continuous policy efforts to correct these problems. We argue that the key determining factor is repressed factor cost, which is associated with heavily distorted markets for labor, capital, land, resources and the environment. These are like implicit subsidies for producers, investors and exporters. They boost growth and, at the same time, lift investment and exports. Previous policy efforts have focused more on administrative measures, which have not been sustainable. Therefore, a more fundamental solution to the imbalance problem lies in completing market-oriented re forms for production factors and allowing free markets to determine prices of labor, capital, land and resources.

Structural Reform Holds the Key to Reducing Social Financing Cost

In the last couple of years, social financing costs have shot up in China despite an overall capital abundance and increasing market-based capital allocation. This paper has investigated overall financial cost and capital cost ratio as two measurements of financing cost, compared financing costs of different channels, examined the relationship of risk premium, financial repression, interest rate liberalization, and resource occupation versus financing cost, and addressed the problem of high non-manufacturing cost. On such a basis, specific countermeasures have been proposed. The main conclusion of this paper is： The current high social financing costs primarily result from economic structural imbalance. The fundamental solution lies in continuing structural reform and credibility system development to eliminate barriers in the transmission of capital circulation policies such as expanding equity financing, relaxing market access formalities for small and micro financial institutions, and improving the bankruptcy system to give full play to the ＂survival of the fittest＂ mechanism of the market.

China and the Global Financial Crisis:Assessing the Impacts and Policy Responses

The present paper explores the role of China in the creation of the current global financial crisis and the impacts of the crisis on its economy. It argues against the view that the ＂saving glut＂ in China （along with other Asian emerging economies） played a significant causal role in the crisis. The global financial crisis did not engender much damage in China＇s financial structure, thanks to the relatively closed, bank-centered financial system. However, the impacts on the ＂real＂ side of the Chinese economy were hard felt. Growth and employment have fallen, largely due to the decline in exports and foreign direct investment. The crisis reveals the vulnerability of the export-dependent growth pattern. Policy responses of the Chinese Government, including monetary, fiscal and social policies, have helped to stem the downfall of the economy in the immediate term, but some of the policies have not addressed the structural problems of the Chinese economy and might well aggravate such problems over time. The present paper proposes a tentative reform blueprint to rebalance the economy and to sustain long-term growth.

Existing contradictions and problems in China’s current economic and social development

Since the 18th National Congress of Communist Party of China(CPC),China has made important achievements and headway in economic and social development.However,now more than ever the focus should be on the conflicts and problems that continue to exist in China’s economy.This paper examines six of them:(1)lack of a firm foundation for sustaining steady economic growth;(2)risks and hidden dangers in the financial,banking,and real estate sectors and massive overcapacity in some industries;(3)increasing difficulty in increasing agricultural production and raising rural incomes;(4)severe air,water,and soil pollution in certain regions and the arduous task of energy conservation and emissions reduction;(5)major structural problems constraining employment;and(6)issues of people’s livelihood that have been the source of dissatisfaction for many Chinese citizens.