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Rebalancing China's Economic Growth

:Some Insights from Japan's Experience

July 2011
Tomoyuki Fukumoto*1
Ichiro Muto*2

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Abstract

One of the greatest challenges China faces is how to reshape its heavily investment-driven mode of economic growth. By investigating how the rebalancing of Japan's economic growth mode was realized in the 1970s, we indicate that it is essential in the rebalancing to correct the distortions in the factor cost (labor cost and capital cost) in a harmonious way. In addition, we refer to Japan's experience to indicate that achieving domestic rebalancing does not necessarily lead to external rebalancing.

Keywords
China, Japan, Rebalancing, Factor Cost Distortion, Current Account Imbalance.

JEL classification
E21, E22, E25, O11, O53

The authors are grateful to Masahiro Higo, Takeshi Kimura, Shingo Odaka, Kumiko Okazaki, Toshitaka Sekine, Kenichiro Watanabe, and Bing Wu for valuable comments. Views expressed here are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  •   *1 International Department, Bank of Japan.
    E-mail : tomoyuki.fukumoto@boj.or.jp
  •   *2 International Department, Bank of Japan.
    E-mail : ichirou.mutou@boj.or.jp

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