Growth and Cycles in China’s Unbalanced Development: Resource Misallocation, Debt Overhang, Economic Inequality, and the Importance of Structural Reforms

Abstract

The recent China's growth slowdown is both cyclical and secular, driven by external and internal factors. In this article, I highlight several key internal factors that have hindered China's growth in recent years. These include worsening misallocation of resources and declining growth of total factor productivity, plus rising household income inequality and debt overhang in the face of tightened liquidity constraint. All of these show the urgency for deepening reforms in China's key macroeconomic landscapes in order to remove institutional barriers and distortions deep-rooted in the nationi¯s economic and financial structure, and to correct fundamental imperfections of its social- economic system. I argue that such reforms are of critical importance for China's pursuit of healthy and sustainable growth and of balanced and adequate development going forward.