The drivers for the decline of China’s current account surplus
China’s current account surplus peaked in 2008 and has been decreasing ever since. In 2018 the 2.1% decline was the largest so far.
Deb and al. argue that China’s current account surplus has been declining due to the following structural factors:
- Rebalancing – since 2008 the domestic savings rate has declined in part due to an ageing population. As a result the savings-investment gap has decreased;
- Increase in outbound tourism – China’s tourism balance, has swung from a small surplus of around $5bn in 2008 to a deficit of nearly $250bn in 2018, driven by the increasing purchasing power of the middle class and an appreciating currency; and
- Moderation in goods surplus due to market saturation and growth differentials with trading partners.
Further declines in China’s surplus, by reducing excess global imbalances, will contribute to global stability. On a country-by-country basis, the decline in China’s current account surplus has generated a differential impact, with the trade balances of Korea, Germany, Brazil improving vis-à-vis China, while that of Japan, India, and Indonesia deteriorating.
The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus
Authors: Pragyan Deb, Albe Gjonbalaj, Swarnali A Hannan
From: IMF
