China’s balance of payments in the past four decades: evolution, future trajectories and policy implications


(1.Institute of World Economics and Politics, Chinese Academy of Social Sciences)

【Abstract】The twin surpluses in China’s balance of payments have gradually vanished since 2012. As a result of the declining surplus of trade in goods, the increasing trade deficit in services, the shrinking domestic savings-investment gap caused by population aging and the rising household leverage in the coming years, China’s current account may suffer from frequent deficits in the short term and persistent deficits in the mid-term. Along with the upgrading of China’s industrial structure, the two-way opening up of its financial markets and loosening capital regulation, China’s non-reserve financial account may swing between surplus and deficit. China’s foreign exchange reserve may decline gradually as the liberalization of renminbi exchange rate regime improves, the current account surplus declines and becomes negative, the “Belt and Road” Initiative is carried out, and foreign exchange holdings by enterprises and households increase. The evolution of China’s balance of payments has the following policy implications. First, the volatilities of both renminbi exchange rate and domestic asset prices will significantly intensify. Second, the operational framework of China’s monetary policy will change dramatically. Third, the increasing two-way capital flows will amplify the internal and external impacts on China’s financial system. Last but not least, the US treasury bond market will face heavy pressure of volatility in the mid-term as a result of the shrinking demand from Chinese investors.

【Keywords】 four-decade reform and opening up; balance of payments; international investment position; evolution; policy implications;


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(Translated by WEN Jianxin)


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This Article


CN: 11-3799/F

Vol , No. 06, Pages 38-51+4-5

November 2018


Article Outline



  • 1 Current account: the surplus shows a shrinking trend and will swing with the deficit in the future
  • 2 Non-reserve financial account: persistent surplus has disappeared and will swing with deficit in the future
  • 3 International reserve: it is expected to remain stable in the short term and will gradually decline in the medium-to-long term
  • 4 Changes in China’s international investment position since 2004: the gone surplus and the mismatched yield rate
  • 5 Conclusions and policy implications
  • Footnote