Summary: One of the greatest challenges China faces is how to reshape its heavily investment-driven mode of economic growth. By investigating how the rebalancing of Japan’s economic growth mode was realized in the 1970s, we indicate that it is essential in the rebalancing to correct the distortions in the factor cost (labor cost and capital cost) in a harmonious way. In addition, we refer to Japan’s experience to indicate that achieving domestic rebalancing does not necessarily lead to external rebalancing.
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