People’s Republic of China: Selected Issues
IMF Staff Country Reports, August 23, 2019
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Bibliographic details
- Published: August 23, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513511252.002
Summary findings
- The paper focuses on the drivers, implications and outlook for China’s shrinking current account surplus.
- Although cyclical factors helped in 2018, the trend decline has been largely structural.
- Further declines in the current account surplus will reduce excess global imbalances—a positive development for global stability.
Drivers of the shrinking current account surplus
- Rebalancing of the Chinese economy away from investment toward consumption.
- Appreciation of the real effective exchange rate toward equilibrium.
- Increase in outbound tourism.
- Moderation in goods surplus reflecting market saturation and China’s faster growth compared with trading partners.
- Cyclical factors provided support in 2018, but the predominant forces are structural.
Global implications and country‑level effects
- The decline in China’s surplus has lowered global imbalances.
- Effects vary across countries:
- Korea: trade balance improved vis-à-vis China.
- Germany: trade balance improved vis-à-vis China.
- Brazil: trade balance improved vis-à-vis China.
- Japan: trade balance deteriorated vis-à-vis China.
- India: trade balance deteriorated vis-à-vis China.
- Indonesia: trade balance deteriorated vis-à-vis China.
Policy recommendations
- Focus on continued rebalancing to sustain the shift toward domestic demand.
- Continue opening the economy to ensure excessive surpluses do not return.
- Prepare the economy and the financial system to handle more volatile capital flows.
Outlook
- The trend decline in China’s current account surplus is expected to continue unless structural drivers reverse.
- Ongoing declines would contribute to lower global imbalances and enhanced global stability.
Source: People’s Republic of China: Selected Issues (IMF Staff Country Report).
Content in this bundle
- People’s Republic of China: Selected Issues; IMF Country Report No. 19/274; July 12, 2019