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External sources (not reviewed)

[...] [...] destabilizing interest rate differentials.

Global rebalancing necessitates contributions from other surplus countries (e.g., Germany, Japan) and those with increasing per capita income.

The United States of America ran a huge deficit against China’s surplus, while the euro area’s current account was nearly balanced but Japan’s current account surplus narrowed.

[...] [...] maintained their trade surplus.

The change of growth model is pressing down Chinese current account surplus, while Turkish government approved last year a bunch of measures to increase the savings rate and to develop strategic investments that would allow the country to reduce external dependency on some products (including energy).

National policies should address problems of overconsumption in the United States and underconsumption in surplus countries, including not only China but also Germany and Japan.

For example, a country with a very high savings rate on the part of private households should try to increase its engagement in productive investment and may need a higher public debt ratio, in particular if it cannot rely on running a current account surplus that would compensate for the savings of the domestic agents.

If measured in value added terms, China has an estimated bilateral trade surplus with the United States that is 40 per cent smaller.

[...] [...] foreign trade surplus, is the world's [...] [...]

[...] [...] smaller trade surpluses.

The fact that exports grew at a similar rate to imports and that the surplus on the regional goods balance rose slightly, from 1.1 per cent of GDP in 2010 to 1.2 per cent in 2011, was therefore owing to high prices.

China’s surplus declined from the peak of 10.6 per cent of GDP in 2007 to about 5 per cent in 2010, and is expected to narrow further to below 4 per cent in 2012, as a result of the accumulated appreciation of the renminbi in the past few years and policies to support domestic consumption.

Most notably, the combination of currency appreciation and rapid growth in domestic demand led to a reduction in the current account surplus of China from about 10 per cent of GDP in 2007 to less than 3 per cent of GDP during the past year.

However, after drawing on reserves, the Medical Benefits Fund’s balance sheet would remain positive for a longer period and would become negative in about 10 years’ time.

For instance, the build-up of large external liability positions by deficit countries, matched by large external asset positions of surplus economies, can potentially lead to exchange-rate instability.

Appreciation of currency in surplus countries will contribute to increasing imports by strengthening their purchasing power while depreciation of deficit countries’ currency will enhance export competitiveness by reducing dollar-denominated value of export products.

While high commodity prices in the first half of 2008 contributed to a current account balance surplus forecast of 4.7 per cent of GDP in 2008, the recent price decline is expected to cause a gross budget deficit of 1.7 per cent of GDP in 2009.

The counterparts to the deficit of the United States have been the external surpluses in China, Germany, Japan and some oil-exporting economies, which have narrowed.

Another concern relates to the process of adjustment to the imbalances by major economies, namely, the concurrent reduction of deficits and surpluses, which should not create economic disruption and endanger economic growth prospects.

In the service sector, EU exports to China expanded sixfold between 1994 and 2004 (European Commission, 2006a:5), and the EU had a surplus of EURO 1.7 billion in trade in services with China in 2006.

The Action Plan aims to address short-term vulnerabilities in the financial system and strengthen medium-term foundations for growth, such as through fiscal consolidation and boosting domestic demand in countries with large current account surpluses to advance global rebalancing.

Countries with a high surplus should strengthen their domestic markets and, as appropriate, make their foreign exchange rate policies more flexible in such a way that contributes to the eventual rebalancing of global demand.

China’s long-standing pattern of reserve accumulation, the persistence of its current account surplus and the incomplete appreciation of the renminbi, especially given rapid productivity growth in the traded goods sector, indicate that the real exchange rate of the renminbi is persistently misaligned and remains substantially undervalued.