U.S., China, and the Unraveling of Global Imbalances

Since 2003, world economic growth has accelerated and there has been strong improvement in corporate profitability. The U.S. current account deficits and China’s dramatic economic rise have been the two pillars underpinning the current global economic expansion. The coming years are likely to see the unraveling of the external and internal imbalances of the U.S. economy and the Chinese economy has been characterized by excessive dependence on investment and exports. Whether global economic expansion can be sustained to a large extent depends on whether the Chinese economy can be successfully restructured to be led by domestic consumption and to effectively address the question of long-term ecological sustainability.