The Drivers, Implications and Outlook for China's Shrinking Current Account Surplus

26 Pages Posted: 3 Dec 2019

See all articles by Pragyan Deb

Pragyan Deb

International Monetary Fund (IMF); London School of Economics & Political Science (LSE) - Financial Markets Group

Albe Gjonbalaj

International Monetary Fund (IMF)

Swarnali Ahmed Hannan

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

China's current account surplus has declined significantly from its peak in 2008 and the external position in 2018 was in line with medium-term fundamentals and desirable policies. While cyclical factors and expansionary credit and fiscal policies contributed, the trend decline has been largely structural, driven by economic rebalancing from investment to consumption, appreciation of the real effective exchange rate (REER) towards equilibrium, increase in outbound tourism, and moderation in goods surplus reflecting market saturation and China's faster growth compared with trading partners. Policies should focus on continued rebalancing and opening up to ensure excessive surpluses do not return, and to prepare the economy and the financial system to handle more volatile capital flows. From a global perspective, the decline in China's surplus has lowered global imbalances, but with different impact across countries. The analysis is based on data as of July 2019.

Keywords: Accounting, Aging, Assets, Balance of trade, Bank deposits, Bilateral trade, Bonds, Capital, Capital account, Capital flows, Capital inflows, Capital outflows, Centrally planned economies, Commodities, Commodity markets, Commodity prices, Comparative advantage, Consumer goods, Consumption, Credit, Credit demand, Credit policy, Currencies, Current account, Current account balances, Current account deficits, Current account surpluses, Debt, Demand, Development, Domestic credit, Domestic savings, Economic sectors, Economies, Equilibrium (Economics), European Union, Exchange rate appreciation, Exchange rate depreciation, Exchange rate regimes, Exchange rates, Export growth, Export markets, Expor

JEL Classification: F1, F3, C, D4, D5, E, E01, E2, E3, E31, E42, E5, E

Suggested Citation

Deb, Pragyan and Gjonbalaj, Albe and Ahmed Hannan, Swarnali, The Drivers, Implications and Outlook for China's Shrinking Current Account Surplus (November 2019). IMF Working Paper No. 19/244, Available at SSRN: https://ssrn.com/abstract=3496720

Pragyan Deb (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Albe Gjonbalaj

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Swarnali Ahmed Hannan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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