EconPapers    
Economics at your fingertips  
 

The Long Landing Scenario: Rebalancing from Overinvestment and Excessive Credit Growth. Implications for Potential Growth in China

Marie Albert, Cristina Jude () and Cyril Rebillard ()

Working papers from Banque de France

Abstract: After three decades of rapid growth, the Chinese economy has been slowing; at the same time, concerns about the sustainability of its growth model are mounting, calling for urgent rebalancing. This paper provides an assessment of how, and to what extent, the rebalancing process may impact China’s potential growth in the next fifteen years. After reviewing the main reasons behind China’s high growth and imbalances (and the role of factor price distortions), as well as its rising vulnerabilities (overinvestment, excessive credit growth, and a real estate bubble), we adopt a production function approach to derive potential growth. However we depart from the standard methodology in two important ways: first, we correct China’s capital stock for overinvestment by taking into account the credit cycle; second, we disentangle the effects of sectoral reallocations from within-sector productivity, allowing for a better assessment of the expected shift from manufacturing to services. Our results indicate that growth would be currently slightly higher than its potential, with a positive output gap, thus questioning the rationale for additional stimulus measures. Moreover, in our scenario potential growth would fall more quickly than currently expected by the Consensus, to around 5 percent by 2020.

Keywords: China; potential growth; overinvestment; credit cycle; sectoral reallocations; rebalancing. (search for similar items in EconPapers)
JEL-codes: E22 E24 E32 E51 O11 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-tra
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_572_2015.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:572

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().

 
Page updated 2019-04-19
Handle: RePEc:bfr:banfra:572