If not addressed, these factors could limit U.S. economic growth. Some economists have estimated that this inflated the current-account surpluses in 2005-07 by around 3 percentage points (Zhang 2009). It is likely to return to a surplus in the coming months. Trump boasted that a first-quarter drop in China’s trade surplus is evidence that his tariffs are working — but recent data indicates his agenda will have unintended consequences for the U.S. China’s current account surpluses are the target of growing criticism in the international policy community. Labour-cost distortions have increased significantly in recent years, more because of the slower growth of migrant workers’ pay than urban wages. These include high consumer debt, the U.S. federal budget deficit and debt, and high savings rates in Japan and China. A world without the WTO: what’s at stake? Who will be the winner of the US–China trade war? The World Bank predicts a 3.5 per cent growth rate for the world economy this year, and most analysts also predict that the US economy will grow at a similar rate. Krugman, Paul (2010), “Chinese New Year”, New York Times, 1 January. Any economy that saves 45 percent of GDP will tend to run a current account surplus, China included. Some economists found that decline in youth dependency ratio by nearly 20 percentage points contributed to rise of China’s net foreign asset position by 90% of GDP (Ma and Zhou 2009). Most Chinese economists and officials strongly reject the claim that China and its exchange-rate policy were to blame for America’s asset bubbles, high unemployment rate, and large current-account deficits. Analysts at Morgan Stanley predict that China could be in deficit in 2019—which would be … While a current account … But these facts do not mean China’s large and growing external imbalances are not problematic. the target of growing criticism in the international policy community, a second round crisis in international financial markets, this week warns that Chinese current account surpluses are a structural consequence of the ‘double transition’. Post was not sent - check your email addresses! A country with a surplus on the current account sees capital outflows of the same amount. So when The Economist recently made the case that China would soon become a current account deficit country, eyebrows were raised. Your email address will not be published. How will Trump and Xi approach trade issues? Certainly focusing on the nominal exchange rate alone is unlikely to fix the imbalance problem quickly. China's surplus is down relative to its pre-global crisis level, both in dollar terms and as a percent of China… Required fields are marked *. The reason for the shift is simple. global financial crisis. The ideas outlined by Yao Yang and Peter Drysdale are reasonable propositions to consider. US millitary and basic economic strengths shall remain overwhelmingly stronger to keep in check unreasonable Chinese ambitions now and in foreseeable future. China’s 2018 surplus was equivalent to 0.39% of GDP, the first time the reading has dropped below 1%, according to SAFE. Your email address will not be published. repressing factor costs. The economics of insurance and its borders with general finance, Maturity mismatch stretching: Banking has taken a wrong turn. The other is the extraordinary demographic transition that has taken place since China introduced the one-child policy in 1979. Current account surpluses can also be the effect of a recession, when domestic demand dips and imports are curbed if a currency is depreciated. A complementary agenda is the structural reforms that are necessary both in China and in North America to deal with the root causes of the imbalance problem in each the national and the global economy. Such discrimination help repress wages of migrant workers. There is no denying that exchange rates are one important parameter determining exports, imports and, therefore, the imbalances. Distortions to both land and energy costs showed upward trends during the past years. China’s current account surplus expanded since 1993 and peaked at $420.6 billion in 2008. Second, the common perception that a current account surplus is “good” and a deficit “bad” is misplaced. The double transition that Yao explains describes two big changes taking place in the Chinese economy. Expect a U-shape for China’s current account balance. Woo, Wing Thye (2006), “The Structural Nature of Internal and External Imbalances in China”, Journal of Chinese Economic and Business Studies, 4(1): 1- 19. With trade wars heating up in 2017, the current account deficit fell even further to $365 billion. Zhou Xiaochuan (2009), “Thoughts on Saving Rate”, Essay published on the official website of the People’s Bank of China, Beijing, China, 24 March. Double transition theory advanced by Yao Yang growth of savings. And, finally, the last hypothesis concerns the impact of the exchange-rate policy. East Asia Forum welcomes submissions from readers interested in being part of its network of academics. In fact, movement of the combined cost distortions for capital, land, and energy provides a reasonable explanation about recent surge in current-account surplus.
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