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

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  • Mr. Pragyan Deb
  • Albe Gjonbalaj
  • Mrs. Swarnali A Hannan

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.

Suggested Citation

  • Mr. Pragyan Deb & Albe Gjonbalaj & Mrs. Swarnali A Hannan, 2019. "The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus," IMF Working Papers 2019/244, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/244
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    References listed on IDEAS

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    1. Ms. Longmei Zhang & Mr. R. Brooks & Ding Ding & Haiyan Ding & Hui He & Jing Lu & Rui Mano, 2018. "China’s High Savings: Drivers, Prospects, and Policies," IMF Working Papers 2018/277, International Monetary Fund.
    2. Anna Wong, 2017. "China’s Current Account : External Rebalancing or Capital Flight?," International Finance Discussion Papers 1208, Board of Governors of the Federal Reserve System (U.S.).
    3. Carlos Caceres & Mr. Diego A. Cerdeiro & Rui Mano, 2019. "Trade Wars and Trade Deals: Estimated Effects using a Multi-Sector Model," IMF Working Papers 2019/143, International Monetary Fund.
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    Cited by:

    1. Chor, Davin & Li, Bingjing, 2024. "Illuminating the effects of the US-China tariff war on China’s economy," Journal of International Economics, Elsevier, vol. 150(C).

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