From the World's Factory to a World Creditor: China's External Wealth and Excess Returns, 1997-2016

HKIMR Working Paper No. 8/2018

49 Pages Posted: 31 Mar 2018

See all articles by Yi Huang

Yi Huang

Graduate Institute of International and Development Studies

Date Written: March 26, 2018

Abstract

We study China’s external wealth, its net foreign assets position with valuation adjustment, and its excess returns. The net foreign assets of China, which are mainly dominated by foreign reserve assets and foreign direct investment liabilities, have grown rapidly since its entry to the World Trade Organization in 2001 and exceeded 14 percent of its gross domestic product at the end of 2016. In contrast, the excess returns of gross assets over gross liabilities, which mostly correspond to the sizable capital gains from the latter, are negative. These results occur mainly because of the composition effect between risky liabilities and safe assets, where China takes a short position in equity and a long position in debt. Our findings help elucidate the mechanism through which a high growth economy like China transfers its external wealth to the rest of the world when the domestic financial markets are less developed and safe assets are scarce in the international monetary system.

Keywords: Net Foreign Assets, Excess Returns, China

JEL Classification: F21, F31, F32, F36

Suggested Citation

Huang, Yi, From the World's Factory to a World Creditor: China's External Wealth and Excess Returns, 1997-2016 (March 26, 2018). HKIMR Working Paper No. 8/2018. Available at SSRN: https://ssrn.com/abstract=3149301 or http://dx.doi.org/10.2139/ssrn.3149301

Yi Huang (Contact Author)

Graduate Institute of International and Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
48
Abstract Views
226
PlumX Metrics