China’s New Path

Apr 29, 2013 Martin Feldstein

The opaque nature of China’s government makes it difficult to see where Chinese economic policy is heading, and thus how the Chinese economy will develop in the years ahead. But China’s new leaders have signaled where they want the economy to go, and, most important, they have put talented people in charge of the process.

CAMBRIDGE – The opaque nature of China’s government makes it difficult to see where Chinese economic policy is heading, and thus how the Chinese economy will develop in the years ahead. But the scale of China’s economy and its role in global trade and financial markets compel us to try to understand the intentions of China’s new leadership.

A useful starting point is to examine the key appointments that have been made since President Xi Jinping assumed office. One surprise was the decision to retain Zhou Xiaochuan as Governor of the People’s Bank of China (PBOC). Zhou had come to the end of his term – and had reached an age at which officials are supposed to retire. So the decision to keep him on for at least the next two years represents a significant endorsement by the new Chinese leadership.

Zhou is an intelligent and internationally respected expert on monetary policy and finance. As the head of the PBOC, he has favored more market-based monetary policies and increased internationalization of China’s currency, the renminbi. He has also worked successfully to contain inflationary pressures. We can expect more of the same in the coming years.

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Martin Feldstein

Writing for PS since 2008
129 Commentaries

Martin Feldstein was Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. He chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. He was also on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

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Frank O'Callaghan May 1, 2013

There are big questions for China. Continuing urbanization is a threat if there is high unemployment and social unrest. Sharp increases in world food prices threaten this.

The other great Chinese issue is the race; can they get rich enough before they get too old? The answer depends on how rich and how old.

The size and structure of China makes these issues important not for China alone but for the whole world. There is an old maxim that "WHEN America sneezes, the rest of the world catches the cold". (The famous phrase originated around 1929 in the aftermath of the Wall Street crash -which was the previous globalisation's nasty bump! ). Now if China sneezes the world gets pandemic flu.
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