Current Account Surpluses and the Global Imbalance: China's Role

A good NBER paper that touches on China's role in the global imbalances between current account surpluses and deficits - a not altogether surprising conclusion about China is highlighted in bold.

"On Current Account Surpluses and the Correction of Global Imbalances"
NBER Working Paper No. W12904


Contact: SEBASTIAN EDWARDS
University of California, Los Angeles - Global
Economics and Management (GEM) Area, National
Bureau of Economic Research (NBER)
Email: SEBASTIAN.EDWARDS@ANDERSON.UCLA.EDU
Auth-Page: http://ssrn.com/author=33998

Full Text: http://ssrn.com/abstract=963737

ABSTRACT: In this paper I analyze the nature of external adjustments in current account surplus countries. I ask whether a realignment of world growth rates - with Japan and Europe growing faster, and the U.S. growing more slowly - is likely to solve the current situation of global imbalances. The main findings may be summarized as follows: (a) There is an important asymmetry between current account deficits and surpluses. (b) Large surpluses exhibit little persistence through time. (c) Large and abrupt reductions in surpluses are a rare phenomenon. (d) A decline in GDP growth, relative to long term trend, of 1 percentage point results in an improvement in the current account balance - higher surplus or lower deficit - of one quarter of a percentage point of GDP. Taken together, these results indicate that a realignment of global growth - with Japan and the Euro Zone growing faster, and the U.S. moderating its growth - would only make a modest contribution towards the resolution of global imbalances. This means that, even if there is a realignment of global growth, the world is likely to need significant exchange rate movements. This analysis also suggests that a reduction in China's (very) large surplus will be needed if global imbalances are to be resolved.