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The External Wealth of China: An Investigation from the International Balance Sheet Perspective

  • Andrew Sheng

    (Tsinghua University)

  • Allen Ng

    (Bank Negara Malaysia)

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    International financial integration has accelerated at an unprecedented pace in recent years. External holdings of financial assets and liabilities for both industrial and emerging countries have grown rapidly since the mid-1990s, many times exceeding their respective national income, and traditional surveillance methods using flow data are increasingly incapable of satisfactorily explaining the recent major global economic developments. Using Lane and Milesi-Ferretti's (2006) rich data-set of external positions for 145 countries from 1970 to 2004, this paper selects several issues to highlight the usefulness of balance sheet analysis as a tool for historical understanding and to examine how it can help in an analysis of possible future vulnerabilities. Starting from a global overview, the study looks at China from a comparative angle vis-¨¤-vis the world and the rest of Asia, and finally focuses on the evolution of the external position of China. Although the investigations are preliminary in nature, this paper demonstrates how China has emerged as an important net creditor in an increasingly integrated world and suggests that as China becomes more important globally as a net creditor, the balance sheet analysis of trends and a clearer focus on real total rates of return on external assets, and their risk management, have become increasingly more important over time. It is hoped that this paper will stimulate more academic and policy analysis in this growing area of policy importance.

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    Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 012008.

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    Length: 28 pages
    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:hkm:wpaper:012008
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    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers 5220, C.E.P.R. Discussion Papers.
    3. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "Financial globalization and exchange rates," LSE Research Online Documents on Economics 19926, London School of Economics and Political Science, LSE Library.
    4. Philip R. Lane & Gian Maria Milesi-Ferretti, 2005. "A Global Perspective on External Positions," NBER Working Papers 11589, National Bureau of Economic Research, Inc.
    5. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," NBER Working Papers 12755, National Bureau of Economic Research, Inc.
    6. Barry Eichengreen & Hui Tong, 2005. "Is China's FDI Coming at the Expense of Other Countries?," NBER Working Papers 11335, National Bureau of Economic Research, Inc.
    7. Lee Branstetter & Nicholas Lardy, 2006. "China's Embrace of Globalization," NBER Working Papers 12373, National Bureau of Economic Research, Inc.
    8. Shang-Jin Wei & Eswar Prasad, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," IMF Working Papers 05/79, International Monetary Fund.
    9. Barry Eichengreen & Yeongseop Rhee & Hui Tong, 2004. "The Impact of China on the Exports of Other Asian Countries," NBER Working Papers 10768, National Bureau of Economic Research, Inc.
    10. Rodrik, Dani, 2006. "What's So Special About China's Exports?," CEPR Discussion Papers 5484, C.E.P.R. Discussion Papers.
    11. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004," IMF Working Papers 06/69, International Monetary Fund.
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