On September 24, 2009, the Brookings-Tsinghua Center for Public Policy hosted a seminar at Tsinghua University with Dr. David Dollar, the U.S. Treasury’s Economic and Financial Emissary to China, entitled “Rebalancing Global Demand: Adjustment in the US and China in the Wake of the Global Crisis”. During two hours of presentation and lively discussion, Dr. Dollar explained the need to rebalance global demand in the current international economic framework and introduced measures both the United States and China might adopt to achieve this.
Beginning with the events leading up to the global economic crisis, Dr. Dollar presented data showing how the recent global economic boom led to a consumption boom, a drop in savings in the United States, and a dramatic increase in the mortgage debt of American households. He emphasized that rebalancing for the U.S. in the wake of the global financial crisis will require both regulatory reform and increasing savings rates. He reaffirmed that the U.S. has a serious agenda of reform including financial sector regulation and increased efforts to prevent “regulatory arbitrage”. He also emphasized the importance for the U.S. to increase savings rates, with a goal of returning to historical levels of savings. Looking forward, he predicted that even if growth in the U.S. economy improves coming out of the global financial crisis, an increase in the national savings rate is likely to be maintained and a return to previous high levels of consumption growth is unlikely.
As for complementary measures that China might consider to rebalance global demand, Dr. Dollar praised China’s stimulus plan in response to the crisis and proposed that China should act to stimulate domestic demand as a long-term growth measure, while warning that exports cannot be counted upon to play the same “engine role” in producing economic growth as it did in the past. Given that domestic consumption remains a relatively small share of China’s GDP, Dr. Dollar urged China’s transition to a growth strategy based more on final consumption. To achieve this goal, he proposed that China’s government should increase funding in health, education, and social welfare provision; encourage rural-urban migration; increase interest rates to aid a transfer of income from the enterprise sector to the household sector; and seek to develop the service sector.
Responding to a variety of questions from the audience, Dr. Dollar first discussed further details of the U.S. fiscal stimulus plan and long-term efforts in the U.S. to address the effects of the global financial crisis. In reply to a question about the issue of reform to the international monetary system, he explained the position of the U.S. Treasury on supporting increased voting shares for dynamic emerging market economies like China. He also suggested liberalization of imports to China in areas such as healthcare, media and entertainment, airlines, and education as a possible approach to reducing trade imbalances. Finally, he proposed the use of “intelligent incentives” and encouraging rural-urban migration as methods to support environmentally sustainable economic growth in China. The seminar finished with a summary of main points by Dr. Dollar and concluding remarks offered by Dr. Xiao Geng, the moderator and Director of the Brookings-Tsinghua Center.
