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crisis: The reforms China needsRecognition that cooperation with China was necessary to manage global demand has given way to protectionism and hostility.Yet, for China, 2018 feels similar to 2008 in an important way: Negative shocks originating in the United States pose a significant threat to its economic growth. While the authorities' response a decade ago did avert a sharp recession, it also paved the way for many other problems, including soaring debt levels for local governments and state-owned enterprises, the expansion of shadow banking, the re-emergence of excess capacity in several sectors and a decline in the relative strength of private firms.In these circumstances, China might be tempted to double down on stimulating aggregate demand with short-term measures like channeling more infrastructure investment through local governments and further credit easing for state-owned firms. Similarly, when it comes to foreign trade and investment, China should adopt a principle of "government neutrality" to regulate cooperation and contractual negotiations, including technology transfer between foreign and domestic firms. More broadly, it should continue to reduce barriers to trade and investment by foreign firms in China, including by following through on the announced relaxation of restrictions on foreign financial firms operating in the country.
The case for
climate tariffs efficiency
economic policy shocks
of China’s property rights
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