How China Could Contribute to a Benign Global Rebalancing?

Our study shows that China could contribute to an orderly global rebalancing using a package of policies to stimulate its domestic consumption. These policies include a progressive appreciation of the RMB, fiscal stimulation by increasing expenditure on education, health care, social safety nets and poverty reduction, income policies to reduce inequality and to strengthen wage income, and reforms of the financial system to improve financial efficiency and to mitigate financial constraints. By implementing such policies, China's external surplus could be narrowed and its domestic imbalances improved. The excessively high savings rate could be lowered and the share of household consumption increased, even though GDP growth would moderate slightly. [ABSTRACT FROM AUTHOR]