The Appropriate Policy Mix for China

This paper discusses the appropriate policy mix for China in the post crisis period. As is well known, China has achieved a remarkable economic growth rate over the last 30 years using an export-led growth strategy. To implement this strategy, the Chinese authorities have pegged their currency to the US dollar and accorded favorable treatments to large corporations and wealthy individuals at the expense of ordinary workers and small and medium sized enterprises. However, this strategy is no longer appropriate. To continue developing, China should adopt a more flexible currency regime, use the excess profits of SOEs to invest in health care, pensions and educations, and liberalize the financial system. In the medium term, this policy mix will help to reduce global imbalances and to spread the fruits of the Chinese miracle to hundreds of millions of poor rural citizens and struggling urban migrants