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China’s Five-Year Plan and Global Interest Rates

CAMBRIDGE – China’s new five-year plan will have important implications for the global economy. Its key feature is to shift official policy from maximizing GDP growth toward raising consumption and average workers’ standard of living. Although this change is driven by Chinese domestic considerations, it could have a significant impact on global capital flows and interest rates.

China’s high rate of GDP growth over the past decade has, of course, raised the real incomes of hundreds of millions of Chinese, particularly those living in or near urban areas. And the funds that urban workers send to relatives who remain in the agricultural sector have helped to raise their standard of living as well.