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IMF Book Launch
Rebalancing Growth in Asia
Economic Dimensions for China
Presentation at Carnegie Endowment for Peace
March 9, 2011
Vivek Arora
IMF, Asia and Pacific Department
These are the views of the presenter and not those of the IMF, its Executive Board,
or its Management.
Authors
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Steve Barnett
Ray Brooks
Marcos Chamon
Kai Guo
Sonali Jain Chandra
Adil Mohommad
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Papa N’Diaye
Malhar Nabar
Nathan Porter
Murtaza Syed
Olaf
Unteroberdoerster
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Asia’s success
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During 1980-2010, annual GDP growth in
emerging Asia averaged 7 percent.
8-fold increase in GDP.
Accounts for ¼ of world economy.
Success based on outward-oriented growth.
(E.g., China’s “reform and opening up”).
But, over time, unduly reliant on external
demand.
Need now to develop private domestic demand.
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Some questions and issues
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Why does Asia need rebalancing?
What does rebalancing entail?
 Challenges for Asia
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China’s challenge
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Boosting investment
Managing corporate savings
Boosting private consumption
Prospects for global rebalancing
Conclusions
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Why does Asia need rebalancing?
Global imbalances remain sizable
Global Imbalances
(Percent of World GDP)
Japan
Rest of the world
Emerging Asia
Oil exporters
China
United States
3
2
1
0
-1
-2
2010
2009
2008
2007
2006
2005
2004
2003
2002
2000
-3
2001
Global discrepancy
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Why does Asia need rebalancing?
Asia is highly dependent on external demand
Share of Export Value Added in GDP
Selected Asia: Average Contribution to Real
GDP Growth
(percent)
(percent of real GDP growth)
80
2000
2005
OECD Europe (2000)
60
OECD Europe (2005)
OECD (2000, 2005)
40
Export value-added
Net exports
OECD (excl. U.S.) average
Latin America average
120
100
80
60
40
20
20
Singapore
Korea
Taiwan
Province of China
Malaysia
Japan
China
Thailand
Philippines
United States
Japan
China
Korea
Indonesia
Philippines
Taiwan
Province of China
Thailand
Singapore
Malaysia
0
Indonesia
0
-20
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Why does Asia need rebalancing?
Exports are concentrated in a few industries,
and they influence investment patterns
Asia: Share of Medium and High-Tech
Exports in Total Exports
Selected Asia: Share of Export Value
Added in GDP
(percent of GDP)
100
OECD average
100
Accounting for investment in export sector
80
2008
60
Indonesia
Taiwan
Province of China
Thailand
Philippines
Singapore
Indonesia
Thailand
China
Malaysia
0
Taiwan
Province of China
0
Singapore
20
Korea
20
Philippines
40
Japan
40
2000
Malaysia
60
Korea
80
Japan
Latin America and emerging Europe average
China
(percent; average over 2000-08)
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What Does Rebalancing Mean?
Rebalancing will mean different things for
different countries: higher consumption in
some, higher investment in others
Private Consumption
Asia: Investment
(percent of GDP; 2004-08 average)
80
OECD average
70
(percent of GDP; 2004-08 average)
Emerging Europe and Latin America average
50
40
60
50
OECD average
Middle income country average
30
40
20
30
20
10
Euro area
Japan
New Zealand
Singapore
Indonesia
Australia
Thailand
Korea
India
China
0
Taiwan
Province of China
United States
Philippines
Indonesia
Taiwan
Province of China
Hong Kong SAR
New Zealand
Japan
India
Australia
Thailand
Euro area
Korea
Malaysia
Singapore
China
0
Philippines
United States
Malaysia
Hong Kong SAR
10
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Challenges for Asia
Private investment would be facilitated by
better infrastructure…
Contribution to Change
in Private Investment
(In pct. point of GDP)
Effect of Infrastructure
on Private Investment
(In percent of GDP)1/
Electricity Generation
(Median; in kilowatt hours
per capita)
2.5
Actual
change
Return on
investment
Volatility
Ease of
doing
business
-5 -4 -3 -2 -1 0
2.0
1.5
1.0
0.5
0.0
8000
Non-Asia advanced economies
Latin America
Asia
7000
6000
5000
4000
3000
2000
1000
0
1995
1/ Assuming a 1 percent
increase in infrastructure
2005
Latest
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Challenges for Asia
…and deeper financial markets
Relative Changes in Fundamentals
Selected advanced economies: Venture
Capital Investment
(Percentage point differential in change in
medians between 1990-97 and 2000-07)
(In percent of GDP)
Services vis-à-vis manufacturing
-80
-12
Uncertainty
-9
Debt/assets
-60
Cash flow/
capital stock
-6
Uncertainty
-40
Debt/assets
-3
Cash flow/
capital stock
-20
0.4
0.2
0.0
Japan
0
Germany
0
Canada
3
0.6
Italy
20
Seed/start-up
France
6
OECD (27)
Japan
(RHS)
Expansion
United States
NIEs
(LHS)
0.8
United Kingdom
40
Domestically oriented vis-à-vis exporters 9
Israel
60
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Challenges for Asia
Financial development could also provide room for
Asian firms to reduce corporate saving
Effect of Financial
Liberalization on
Corporate Savings
Financial Reform
Index, 2005
Emerging Asia
Corporate Savings
(Share in world savings; in
percent)
(Regression coefficients)
8
1.0
7
0.9
6
Emerging Asia
Industrial Asia
Non-Asia EM
G7
0.0
-0.5
0.8
-1.0
0.7
4
0.6
3
0.5
2
0.4
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
5
-1.5
-2.0
Asia
Non-Asia
Overall Financial Reform
Index
-2.5
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China’s Challenge
In China, export-led growth may face constraints,
highlighting need for more domestic demand
Selected Asia: Export market share
China: Consumption and Disposable
Income
(In percent of world exports)
(In percent of GDP)
50
Japan (1955–2008)
Korea (1961–2008)
China (1979–2008)
NIEs excl. Korea (1965–2008)
China forecast (2009–14)
14
12
Disposable income
14
12
10
10
8
8
6
6
4
4
Consumption
46
42
38
34
2
12
2009
2008
2007
30
2006
55
2005
49
2004
43
2003
37
2002
31
2001
25
2000
19
1999
13
1998
7
1997
0
1
1996
0
1995
2
Prospects for global rebalancing
Over the medium-term, imbalances may persist in
the absence of policy measures
Global Imbalances
Contribution to Growth in World Imports
of Consumer Goods 1
(Percent of World GDP)
ROW
EMA
JPN
CHN
OIL
(5-year rolling average over 2004-08)
US
China
Euro
area
Other
United
States
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
statistical discrepancy
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
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Prospects for global rebalancing
Coordinated policy packages offer
the best hope for successful rebalancing
(real GDP, deviation from Baseline)
Fiscal policies designed to reduce deficits and raise potential output in advanced economies (fully credible in 2013)
Additional effects of structural reforms designed to raise potential output
4
3
3
United States
2
2
1
1
0
0
-1
-1
-2
6
Japan
2007
09
11
13
15
17
Euro Area
3
2007
09
11
13
15
11
13
15
17
China
2
4
1
2
0
0
-1
-2
2007
09
11
13
15
17
-2
2007
09
17
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Conclusions
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Asia’s growth remains generally export-dependent
But the rebalancing challenge varies across
economies.
Some (in particular China) will need to boost
consumption, others will have to focus on
investment. Many would need reforms to boost
services-sector growth.
Comprehensive and coordinated reforms are
needed to achieve successful rebalancing in Asia
and globally.
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