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What Is the Outlook for China’s External Surplus?

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Abstract

The sharp slowdown in China’s property sector has reignited debate over the country’s future role as a net provider of savings to the global economy. The debate revolves around whether a sustained decline in property investment will spur a long-term increase in China’s current account surplus, given the country’s high savings rate. However, China’s rapidly aging population presents opposing forces that complicate this story. The shift of a large share of its population from working life to retirement will reduce savings supply even as a shrinking labor force will reduce investment demand. In this post, we focus on the demographic part of the story and find that this force will exert considerable downward pressure on China’s current account surplus in coming years.

Suggested Citation

  • Hunter L. Clark & Matthew Higgins, 2022. "What Is the Outlook for China’s External Surplus?," Liberty Street Economics 20221017, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:94922
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/10/what-is-the-outlook-for-chinas-external-surplus/
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    Keywords

    China; savings; balance of payments; current account; demographics; trade;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General

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