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China’s evolving external wealth and rising creditor position

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  • Guonan Ma
  • Zhou Haiwen

Abstract

China’s emergence as a major player in world trade is well known, but its rising role in global finance is perhaps underappreciated. China is the second largest creditor in the world today, with a net creditor position of exceeding 30% of GDP in 2007. In this paper, we test the importance of growth differential, demographics, government debt, financial depth and the exchange rate in shaping China’s net foreign asset position. Our findings highlight the sharp fall in youth dependency as one key driver behind China’s puzzlingly large net lender position and also confirm the neoclassical prediction that faster growth attracts more capital inflows. Looking ahead, our findings also suggest that China is unlikely to turn into a meaningful net debtor nation over the next two decades. Moreover, we project that, as China engages in increased cross-border asset trade, its gross foreign assets and liabilities could triple in 10 years. While adjustments in China’s net foreign asset position are expected to be gradual and may thus facilitate its capital account opening, increasing exposure to external shocks and growing interactions with the rest of the world may present challenges both to China and to the global financial system.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 286.

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Length: 30 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:bis:biswps:286

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Keywords: international investment position; external balance sheet; current account balance; financial integration;

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References

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Cited by:
  1. Dong He & Lillian Cheung & Wenlang Zhang & Tommy Wu, 2012. "How would Capital Account Liberalisation Affect China's Capital Flows and the Renminbi Real Exchange Rates?," Working Papers, Hong Kong Institute for Monetary Research 092012, Hong Kong Institute for Monetary Research.
  2. Robert N. McCauley & Guonan Ma & Yin-Wong Cheung, 2009. "Renminbisation des actifs internationaux de la Chine," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 95(2), pages 135-155.
  3. Carl Bonham & Calla Wiemer, 2010. "Chinese Saving Dynamics: The Impact of GDP Growth and Dependent Share," Working Papers, University of Hawaii Economic Research Organization, University of Hawaii at Manoa 2010-11R, University of Hawaii Economic Research Organization, University of Hawaii at Manoa, revised 11 Jan 2012.
  4. repec:hal:wpaper:halshs-00565224 is not listed on IDEAS

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