Malhar S Nabar

Investment-Led Growth in China; Global Spillovers

Over the past decade, Chinas growth model has become more reliant on investment and its footprint in global imports has widened substantially. Several economies within Chinas supply chain are increasingly exposed to its investment-led growth and face growing risks from a deceleration in investment in China. This note quantifies potential global spillovers from an investment slowdown in China. It finds that a one percentage point slowdown in investment in China is associated with a reduction of global growth of just under one-tenth of a percentage point. The impact is about five times larger than in 2002. Regional supply chain economies and commodity exporters with relatively less diversified economies are most vulnerable to an investment slowdown in China. The spillover effects also register strongly across a range of macroeconomic, trade, and financial variables among G20 trading partners.

Safeguarding Banks and Containing Property Booms; Cross-Country Evidenceon Macroprudential Policies and Lessons From Hong Kong SAR

We assess the effectiveness of macroprudential policies against a number of different indicators of property sector activity and financial stability. At the cross-country level the use of LTV caps decelerates property price growth. Both LTV and DTI caps slow property lending growth. LTV caps also affect a broader range of financial stability indicators in economies with pegged exchange rates and currency boards. For Hong Kong SAR, LTV policy tends to be forward looking, with caps lowered to counter downward movements in mortgage rates, and higher growth in mortgage loan and volumes of transactions. The reduction in caps appears to respond to small and medium size flat price appreciation, and contributes to a decline in high-end volume growth after a year and total transactions volume growth after 1½–2 years. Price growth responds favorably after 2 years. The evidence suggests LTV tightening could affect property activity through the expectations channel rather than through the credit channel.

Targets, Interest Rates, and Household Saving in Urban China

This paper studies a panel of Chinas provinces over the period 1996-2009 during which urban household saving rates increased from 19 percent of disposable income to 30 percent. It finds that the increase in urban saving rates is negatively associated with the decline in real interest rates over this period. This negative association suggests that Chinese households save with a target level of saving in mind. When the return to saving declines (increases), it becomes more difficult (easier) to meet a target and households increase (lower) their saving out of current disposable income to compensate. The results are robust across specifications and to the inclusion of additional variables. A main policy implication is that an increase in real deposit rates may help lower household saving and boost domestic consumption.

Sector-Level Productivity, Structural Change, and Rebalancing in China

This paper studies structural changes underlying Chinas remarkable and unprecedented growth in recent years. While patterns of structural transformation across Chinas provinces are broadly in line with international experience, one important difference is in labor productivity differentials between services and the rest of the economy. Specifically, the gap between labor productivity in the rest of the economy and services has widened across Chinas provinces as they have moved from low to middle income, which is contrary to the trend observed in cross-country experience. Evidence from a panel of Chinas provinces suggests that credit and labor market frictions have inhibited labor productivity growth in services relatively more than in the rest of the economy. Reducing these frictions is essential for achieving the next stage of Chinas development, one in which the service sector will need to play a more prominent role as an engine of growth. The evidence also suggests that improving labor productivity in services will lift the consumption share of GDP, thereby advancing the needed rebalancing of domestic demand in China.

Enhancing China's Medium-Term Growth Prospects: The Path to a High-Income Economy

China’s current growth model — which has delivered steady and robust growth for two decades and lifted some 500 million individuals out of poverty — has become too reliant on credit and investment, and has begun to experience diminishing returns. Delays in advancing the government’s reform agenda will mean that vulnerabilities continue to grow and the probability of stalled convergence increases. On the other hand, with reforms to accelerate TFP growth and shift the economy away from its continued reliance on capital accumulation, China can grow at a healthy pace and maintain its convergence toward the level of high income economies. Evidence from China’s provinces indicates that there is room to improve productivity and sustain such a convergence toward the level of more prosperous economies.

China's Economy in Transition : From External to Internal Rebalancing

Chinas current account surplus has declined to nearly a third of its pre-crisis peak. While this is a major reduction in Chinas external imbalance, it has not been accompanied by a decisive shift toward consumption-based growth. Instead, the compression in the external surplus has been accomplished through investment rising even higher as a share of the national economy. The increasing reliance on investment as the main driver of Chinas growth raises questions about how durable the compression in the external surplus will be and whether the current growth model, which has had unprecedented success in lifting about 500 million people out of poverty over the last three decades, is sustainable. This volume will study various aspects of the rebalancing underway in China and highlight policy lessons for achieving a stable, sustainable, and inclusive transformation of the growth model.