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What drives China's current account?


  • Hoffmann, Mathias


The paper offers an empirical taxonomy of the factors driving China's current account. A simple present-value model with non-tradeable goods explains more than 70 percent of current account variability over the period 1982–2007, including the persistent surpluses since 2001. It also correctly predicts the decline of China's current account since 2008. Expected increases in the prices of non-tradeables (e.g. housing and medical care) and expected declines in net output (GDP less investment and government spending) are the main channels of external adjustment. Much of China's current account surplus seems driven by shocks that have global effects by persistently depressing the world real interest rate. This is consistent with recent theoretical models that suggest that factors related to China's domestic financial development are key in understanding global imbalances.

Suggested Citation

  • Hoffmann, Mathias, 2013. "What drives China's current account?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 856-883.
  • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:856-883 DOI: 10.1016/j.jimonfin.2012.07.005

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    Cited by:

    1. Samuel Cudré & Mathias Hoffmann, 2017. "A provincial view of global imbalances: regional capital flows in China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 573-599, August.
    2. Sahoo, Manoranjan & babu, M. Suresh & Dash, Umakant, 2016. "Current account sustainability in SAARC economies: Evidence from combined cointegration approach," MPRA Paper 79014, University Library of Munich, Germany, revised 2016.
    3. Matthieu Bussiere & Aikaterini Karadimitropoulou & Miguel A. Leon-Ledesma, 2017. "Current account dynamics and the real exchange rate: Disentangling the evidence," University of East Anglia School of Economics Working Paper Series 2017-06, School of Economics, University of East Anglia, Norwich, UK..
    4. Wong Hock Tsen, 2014. "External Balance And Budget In Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 37-54.
    5. Ghassan, Hassan B. & Al-Jefri, Essam H., 2016. "الحساب الجاري للاقتصاد السعودي عبر نموذج داخلي الزمن دلائل من منهجية نموذج التقهقر الذاتي البنيوي
      [The Current Account of Saudi Economy through Intertemporal Model: Evidence from SVAR]
      ," MPRA Paper 80302, University Library of Munich, Germany, revised Jun 2017.
    6. Ghassan, Hassan B. & Al-Jefri, Essam H., 2015. "الحساب الجاري في المدى البعيد عبر نموذج داخلي الزمن
      [The Current Account in the Long Run through the Intertemporal Model]
      ," MPRA Paper 66527, University Library of Munich, Germany.
    7. Ghassan, Hassan B. & Al-Jefri, Essam H., 2015. "نموذج نظري إسلامي داخلي الزمن للحساب الجاري
      [Islamic Theoretical Intertemporal Model of the Current Account]
      ," MPRA Paper 69963, University Library of Munich, Germany, revised 11 Jan 2016.
    8. Ghassan, Hassan B. & Drissi, Ramzi, 2015. "Long Run Current Account through theoretical Intertemporal Model," MPRA Paper 71997, University Library of Munich, Germany, revised 04 Apr 2015.

    More about this item


    China; Current account; Present-value models; External adjustment; Global imbalances; Savings glut; Precautionary saving;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General


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