Economic Growth

6 charts from the IMF on China's economic transition

A woman walks at the Bund in front of the financial district of Pudong in Shanghai March 5, 2015. China aims to grow its economy by around 7 percent in 2015 and to keep consumer inflation at around 3 percent, Premier Li Keqiang said in remarks prepared for delivery at today's opening of the annual meeting of parliament, the National People's Congress.

China’s economy is like a large, high-powered ship that is still sailing fast, but in a lopsided way. Image: REUTERS/Aly Song

Longmei Zhang
Deputy Resident Representative for China, IMF

The word “rebalancing” is often used to describe China’s economic transition. But what does it mean? And how much is China rebalancing? A recent IMF paper attempts to answer these questions.

1. The Scorecard: mixed progress

China’s economy is like a large, high-powered ship that is still sailing fast, but in a lopsided way, listing and drawing water. “Rebalancing” refers to the structural transformation that should put this economy on a more even keel, making its voyage more balanced, its growth more sustainable. This economic transformation has four inter-related dimensions: external, internal, environmental, and distributional.

Overall progress since the global financial crisis has been mixed—strong on external rebalancing (i.e., switching from external demand to domestic demand in generating growth), and uneven on the other dimensions. The current account surplus has fallen from the pre-crisis peak of 10 percent of GDP to around 3 percent in recent years, and exports are no longer driving growth.

Image: IMF

2. Consumers growing in importance

Until 2011, this reduction in the external imbalance was reflected in a growing internal imbalance as the investment to GDP ratio rose to even higher levels, reflecting the strong fiscal stimulus. Such rotation could be observed in Chart 1. Since 2012, however, internal rebalancing from investment to consumption has made headway, with a notable acceleration in 2015—consumption is now contributing more than two thirds of GDP growth.

 The big rotation
Image: IMF

3. Deindustrialization: speedy transition

China has made substantial progress on switching from industry to services. The speed of its transition is in line with international experience.

Deindustralization: on the right track
Image: IMF

4. Credit: China’s Achilles’ heel

But, critically, progress has lagged on reducing reliance on credit. For example, credit intensity, the amount of new lending provided for each additional unit of output, has more than doubled since the global financial crisis.

 Binging on credit
Image: IMF

5. Pollution and inequality: on the high side

While the energy intensity of output has fallen, air pollution remained very high in cities. Similarly, income inequality remains very high, though labor’s share of GDP is rising.

Inequality: big disparitites
Image: IMF
Environment: not so green
Image: IMF

6. Falling savings

With population ageing and the envisaged strengthening of social safety nets, household savings are expected to fall gradually and consumption to rise. This is good, as it will allow investment to moderate while keeping the current account balance broadly stable. The importance of the services sector will likely continue to increase, helping reduce environmental pressure and increase labor’s share in national income.

 Savings: a downward spiral
Image: IMF

The structural transformation of the Chinese economy is a work in progress. The economy is rebalancing, but credit remains the Achilles’ heel—absent decisive corporate restructuring and reform of state-owned enterprises, credit to the nonfinancial private sector will likely rise continuously, increasing the risk of disruptive adjustment.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Stay up to date:

China

Related topics:
Economic GrowthGeographies in Depth
Share:
The Big Picture
Explore and monitor how Economic Progress is affecting economies, industries and global issues
World Economic Forum logo

Forum Stories newsletter

Bringing you weekly curated insights and analysis on the global issues that matter.

Subscribe today

How can we transform the economic growth we have into the growth we want?

Council on the Future of Growth and 2023-2024

December 20, 2024

AI-driven growth: Navigating the path to new markets

About us

Engage with us

  • Sign in
  • Partner with us
  • Become a member
  • Sign up for our press releases
  • Subscribe to our newsletters
  • Contact us

Quick links

Language editions

Privacy Policy & Terms of Service

Sitemap

© 2024 World Economic Forum