Cost Distortions and Structural Imbalances in China

This paper attempts to explain the fundamental cause of China's growing imbalance problems. Economic data confirm that the key structural imbalance problems, such as overinvestment, large current account surpluses, low consumption share of GDP and income inequality, have all deteriorated over the past few years, despite continuous policy efforts to correct these problems.We argue that the key determining factor is repressed factor cost, which is associated with heavily distorted markets for labor, capital, ...