The role of China in global external imbalances: some further evidence

The large imbalances in the current account positions of the US and the Asian economies are seen by most scholars as the main threat to an orderly development of the global economy. While the opinions on the most likely evolution of these imbalances and on their sustainability do differ across observers, ranging fromcatastrophic to rather optimistic views, almost all agree that some adjustment will have to take place in the near future, and that this adjustmentwill involve, among other things, a rebalancing of saving and demand across the globe. As an outcome of this process, China shall increasingly supplement the US in the role of engine of global economic growth. Using a global macroeconometric model, we examine the impact on this adjustment process of a number of shocks originating in the Chinese economy, including an expansionary fiscal shock, a revaluation of the renmimbi, and an expansion of internal demand following an acceleration in the process of rural–urban migration. The analysis focuses on two related points: how will these shocks affect themedium-run evolution of transpacific imbalances, andwhatwill their impact be on global economic growth. The simulations allow us to track the impact of these shocks on the different poles of the world economy, and to assess their relative contribution to the task of reducing global imbalances without interrupting global economic growth.