FOR IMMEDIATE RELEASE: May 31, 2007

- NEWS RELEASE -

A new report from Carnegie Endowment Senior Associate Albert Keidel finds that China’s rapid growth over the past quarter century has not been export-led but rather is driven by domestic demand, even in recent years when China’s global trade surplus has rapidly expanded. The report also concludes that China’s management of its economic fluctuations since the 1980s has systematically disadvantaged the rural economy.

China’s Economic Fluctuations and Their Implications for its Rural Economy, which analyzes both fast-growth and slow-growth phases of China’s rapid expansion since 1978, shows that shifts in domestic demand, and not shifts in exports, explain growth patterns.

Other key findings include:

• Because China’s growth has not been export led, the United States should concentrate on improving domestic components of its own international competitiveness rather than focusing on alleged Chinese violations of international commercial norms.
• China should allow nominal bank deposit rates to rise with inflation, since failure to do so in the past has caused damaging swings in inflation and output growth.
• China’s reticence to import grain puts pressure on farmers to plant more grain—often a loss-making venture. China should greatly increase its grain imports over time as a way to improve rural standards of living through product diversification and as a way to strengthen overall Chinese domestic consumption demand.

“The report’s analysis points unambiguously to a greater need to consider the rural implications of standard macroeconomic policy making—not just because worsening rural welfare affects poverty levels and the risk of rural social unrest, but also because the rural economy has the potential to emerge as a vast pool supporting macroeconomic stability and sustained growth based on high levels of both domestic consumption and investment,” concludes the report.

This report was produced in collaboration with Dr. Jianxing Liu of the International Cooperation Center in China’s National Development and Reform Commission, with substantial support from the Ford Foundation

Notes:

1. To read this report, go to www.carnegieendowment.org
   Direct link to the PDF: www.carnegieendowment.org/files/keidel_report_final.pdf 
2. Albert Keidel is a senior associate at the Carnegie Endowment, where he specializes in China economic issues and related U.S. policy.  He formerly served as deputy director and acting director at the U.S. Department of Treasury’s Office of East Asian Nations. Before that, he was senior economist at the World Bank office in Beijing.
3. Press Contact: Jessica Jennings, 202/939-2265, jjennings@ceip.org   
4. For more information about the Carnegie Endowment’s China Program, go to www.carnegieendowment.org/programs/China
5. The Carnegie Endowment for International Peace is a private, nonprofit organization dedicated to advancing cooperation between nations and promoting active international engagement by the United States. Founded in 1910, its work is nonpartisan and dedicated to achieving practical results. 

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