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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)

Registered author(s):

    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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    File URL: http://www.hkimr.org/uploads/publication/172/ub_full_0_2_170_hkimr-no1-2008_1c.pdf
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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. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
    2. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66 National Bureau of Economic Research, Inc.
    3. Dani Rodrik, 2006. "What's So Special about China's Exports?," NBER Working Papers 11947, National Bureau of Economic Research, Inc.
    4. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    5. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
    6. Lee Branstetter & Nicholas Lardy, 2006. "China's Embrace of Globalization," NBER Working Papers 12373, National Bureau of Economic Research, Inc.
    7. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "A Global Perspectiveon External Positions," IMF Working Papers 05/161, International Monetary Fund.
    8. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
    9. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    10. 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.
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