Contemporary Chinese Political Economy and Strategic Relations: An International Journal (Dec 2019)
You’ve Got Money Left Over: Twin Surpluses of Balance of Payments Accounts in China
Abstract
This study is devoted to explore empirically China’s twin (double) surpluses of Balance of Payments (BoP) for the period 1998-2016. This phenomenon reflects the money China have left over from importing (buying) and exporting (selling) goods and services (as recorded in current account), and between outflow and inflow of financial assets (as recorded in financial account). This study answers the following questions: Are China’s twin surpluses sustainable? What are the macroeconomic variables determining China’s twin surpluses? and What are their possible transmission channels between current account surplus and financial account surplus? The time series econometric tests offer that China’s twin surpluses phenomenon is considerably sustainable. That is both surpluses will be approaching a zero balance in the long run. Secondly, domestic income, exchange rate, and world income are important macroeconomic variables in explaining the behaviour of China’s twin surpluses in the long run, except for domestic, and world interest rates. Lastly, no transmission channel has been found, while China’s current account surplus is caused by financial account surplus, and world interest rate, separately. This study has relevant policy implications, especially on the country’s external imbalances.
