The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus
IMF Working Papers, November 8, 2019
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- The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus
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Bibliographic details
- Authors: Pragyan Deb, Albe Gjonbalaj, Swarnali A Hannan
- Published: November 8, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513516097.001
Executive summary
- China’s current account surplus has declined significantly from its peak in 2008.
- The external position in 2018 was in line with medium-term fundamentals and desirable policies.
- Analysis is based on data as of July 2019.
Main drivers of the decline
- Structural rebalancing from investment to consumption.
- Appreciation of the real effective exchange rate (REER) towards equilibrium.
- Increase in outbound tourism.
- Moderation in goods surplus reflecting market saturation and China’s faster growth compared with trading partners.
- Cyclical factors and expansionary credit and fiscal policies also contributed.
Macroeconomic and external implications
- The decline has lowered global imbalances, with heterogeneous impacts across countries.
- China’s external position in 2018 aligned with medium-term fundamentals and desirable policies, implying reduced need for corrective external adjustment.
- The moderation in goods surplus reflects both demand- and supply-side factors including market saturation and relative growth dynamics.
Policy recommendations
- Continue rebalancing policies toward consumption to sustain the structural decline in the surplus.
- Continue opening up the economy to ensure excessive surpluses do not return.
- Prepare the economy and the financial system to handle more volatile capital flows as external integration increases.
Publication and metadata
- By Pragyan Deb, Albe Gjonbalaj, Swarnali A Hannan
- November 8, 2019
- Pages: 25
- Volume: 2019
- Issue: 244
- Series: Working Paper No. 2019/244
- DOI: https://doi.org/10.5089/9781513516097.001
- Stock No: WPIEA2019244
- ISBN: 9781513516097
- ISSN: 1018-5941
Source: IMF Working Paper "The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus", data as of July 2019.
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