After running massive surpluses for two decades, China’s foreign-exchange reserves are poised to break $4 trillion, with the marginal cost of every dollar accumulated vastly surpassing its benefits. It is clearly in China’s interest to reduce its economic imbalances; the question is whether it has the policy space to do so.
BEIJING – China is at a crossroads. After experiencing three decades of unprecedentedly rapid GDP growth, the country weathered the global economic crisis exceptionally well. But it sustains considerable economic imbalances, which are undermining its ability to achieve high-income status. The question is whether China’s leaders – preoccupied with challenges like financial instability stemming from risky shadow-banking activities and a heavy burden of local-government debt – have the policy space to put the economy on a sounder footing.
BEIJING – China is at a crossroads. After experiencing three decades of unprecedentedly rapid GDP growth, the country weathered the global economic crisis exceptionally well. But it sustains considerable economic imbalances, which are undermining its ability to achieve high-income status. The question is whether China’s leaders – preoccupied with challenges like financial instability stemming from risky shadow-banking activities and a heavy burden of local-government debt – have the policy space to put the economy on a sounder footing.