Mr.Pragyan Deb

Albe Gjonbalaj

Mrs.Swarnali A Hannan

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.

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

Mr.Eugenio M Cerutti

Shan Chen

Mr.Adil Mohommad

The trade discussions between the U.S. and China are on-going. Not much is known about the shape and nature of a potential agreement, but it seems possible that it would include elements of managed trade. This paper attempts to examine the direct, first-round spillover effects for the rest of the world from managed trade using three approaches. The results suggest that, in the absence of a meaningful boost in China’s domestic demand and imports, bilateral purchase commitments are likely to generate substantial trade diversion effects for other countries. For example, the European Union, Japan, and Korea are likely to have significant export diversion in a potential deal that includes substantial purchases of U.S. vehicles, machinery, and electronics by China. At the same time, a deal that puts greater emphasis on commodities would put small commodity exporters at a risk. This points to the advantages of a comprehensive agreement that supports the international system and avoids managed bilateral trade arrangements.

Mrs.Swarnali A Hannan

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