The global financial crisis and ensuing economic downturn has raised many questions concerning the future of global economic growth. Prior to the financial crisis, global growth was characterized by growing imbalances, reflected primarily in large trade surpluses in China, Japan, Germany, and the oil exporting countries and rapidly growing deficits, primarily in the United States. The global crisis raises the question of whether the previous growth model of low consumption, high saving countries such as China is obsolete. Although a strong and rapid policy response beginning in the early fall of 2008 made China the first globally significant economy to come off the bottom and begin to grow more rapidly, critics charged that China's recovery was based on the old growth model, relying primarily on burgeoning investment in the short run and the expectation of a revival of expanding net exports once global recovery gained traction. Critics, however, argued that as government-financed investment inevitably tapered off, the likelihood was that global recovery would not be sufficiently strong for China's exports to resume their former role as a major contributor to China's economic expansion. The prospect, in the eyes of these critics, is that China's growth will inevitably falter.
This study examines China's response to the global crisis, the prospects for altering the model of economic growth that dominated the first decade of this century, and the implications for the United States and the global economy of successful Chinese rebalancing. On the first it analyzes the strengths and weaknesses of China's stimulus program. On the second it analyzes the nature of origins of the imbalances in China's economy and the array of policy options that the government has to transition to more consumption-driven growth. On the third successful rebalancing would mean that more rapid growth of consumption would offset the drag on growth from a shrinkage of China's external surplus. Successful rebalancing would mean China would no longer be a source of financing for any ongoing US external deficit. From a global perspective China would no longer be a source of the global economic imbalances that contributed to the recent global financial crisis and great recession.
There is no question more important for the global economy than China and no closer student of Chinese economic policy than Nick Lardy. It follows that this book should be read by anyone concerned with the future of the global economy.
Lawrence H. Summers, former Director of the White House National Economic Council and Harvard University
China does not get special dispensation from the rebalancing imperatives that all major economies face in this post-crisis era. Nick Lardy sheds considerable insight into the critical Chinese piece of this agenda—detailing the financial and currency reforms that will be required for the long-awaited transition to a pro-consumption growth dynamic. This book will undoubtedly elevate the debate over China's global economic impact.
Stephen Roach, Yale University, Non-Executive Chairman Morgan Stanley Asia
Nicholas Lardy is one of most respected American scholars in China because of his admirable works on the Chinese economy. His new book Sustaining China's Economic Growth after the Financial Crisis is a must-read for those who are concerned with China's growth. So far as I have seen, this book is the most comprehensive, detailed, and well-structured account of the turns and twists of the Chinese government's policy in restructuring the imbalanced economy and responding to the global financial crisis in recent years. Nicholas Lardy's defense of China's stimulus program may raise some eyebrows, but his explanation certainly will inspire more in-depth discussions.
Yu Yongding, President of the China Society of World Economics, and former member of the monetary policy committee of the Peoples' Bank of China
Nick Lardy is one of the most knowledgeable people on China's economy I know. I always take his opinions on China very seriously, and the contents of this book is no exception. I believe it is a must read for anyone interested in today's economic policies in China.
Bill Rhodes, President & CEO, William R. Rhodes Global Advisors, LLC
Lardy's book is a masterful account of the policy reforms that China needs to put in place to rebalance its economy and sustain high growth. The book is rich in data and thoughtful analysis, making it essential reading for anyone interested in understanding China's growth prospects.
Eswar Prasad, Brookings Institution
If Nicholas Lardy did not exist, one would feel the need to invent him. ... The main value of this book is in how Lardy paints everything together on one expansive canvas, while at the same time dazzling with some fine analytical brushwork.
Stephen Green, Head of China Research, Standard Chartered Bank
Selected chapters and sections are provided for preview only.
2. Imbalances and Their Implications for China's Economy
3. Policies for Rebalancing Economic Growth
5. The Politics of Economic Rebalancing
Appendix A Statistical Issues