“China’s Rebalancing-Dilemma”

Helmut Wagner

in: One Belt and One Road - China and the World, forthcoming, Proceedings of the International Conference held in 2016 at Frankfurt University, Konfuzius-Institut Frankfurt (2017).

Rebalancing means the correction of imbalances built up in the past. After having experienced a great growth success story over the past three decades, China recently announced a rebalancing of its development process. The term “rebalancing” was explicitly used by the Chinese government in its 12th five-year plan (in 2011) and repeated and confirmed in the 13th five-year plan (in 2016). There it was understood as a necessary shift of the Chinese economy from an investment- and export-driven towards a more consumption- and inward-driven growth path. This is a typical development or restructuring process in middle-income countries where the marginal profitability of industrial sector productions starts to decline (against the background of increasing wages in manufacturing and increasing social, economic and ecological side-costs or imbalances of industrialization; see Wagner 2013). Hence there is then a need to initiate the process of de-industrialization or tertiarization (see, ibid). The mentioned side-costs or imbalances in China were already early (in the mid-00s) denounced in country reports of the IMF and other international organizations associated with the call on China to rebalance its economy.

I shall argue that China currently is hit by multiple rebalancing challenges. First, it has to correct old imbalances built up during the past decades during the industrialization process which obviously has been “overdone”. Second, in the process of correcting the old imbalances, “wrong” political decisions (decisions which appeared to be less costly in the short run) have been made that produced new imbalances which have eventually driven the country into a dangerous vicious circle of always producing new needs for rebalancing.