Global imbalances, the financial crisis and China’s economic recovery

ZHANG Xiaojing (张晓晶),TANG Duoduo(汤铎铎) and LINYueqin(林跃勤)
Institute of Economics, Chinese Academy of Social Sciences
Abstract:
This paper examines the inherent relationship between the global imbalance and the financial crisis from historical
review and a survey of the literature. This paper sets up a two-country model featured by monetary hegemony
showing that the financial crisis of 2008 is interrelated with the United States’ expansionary monetary policy and the
hegemony of the U.S. dollar. This paper then analyses the impact of the crisis and the policy responses, focusing on the preconditions for China’s economic recovery. Through an international comparison, we argue that one of the Great Depression’s lessons is that the exorbitant government intervention in some areas was harmful and that the necessary condition for China’s recovery is economic flexibility, namely, resilient market mechanisms.
Key words:
global imbalance; financial crisis; economic flexibility; economic recovery

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