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China’s Current Account : External Rebalancing or Capital Flight?
This paper examines an anomaly in China?s current account: its large and rapidly growing travel expenditure. Drawing evidence from counterparty data, Chinese international arrival statistics, and gravity equation models extended to travel trade, I find that a significant amount of China?s travel spending in the period 2014-2016 could not be explained by accounting factors or economic fundamentals. The unexplained travel imports are inversely associated with domestic growth and positively associated with renminbi depreciation expectations against the dollar, suggesting that they are less likely to be consumption of goods and services abroad than domestic residents? acquisition of foreign financial assets. Adjusted for these potential disguised outflows, China?s current account balance could be higher than reported by around 1 percent of GDP in 2015 and 2016, a period when the Chinese economy slowed noticeably as it shifted away from investment-driven growth (i.e.?internal rebalancing?). These results suggest that Chinese households, through the travel channel, have in part replaced the official sector in directing domestic surplus savings abroad in recent years. While the official sector preferred liquid foreign government assets, Chinese households appear to prefer private foreign assets.
AUTHORS: Wong, Anna
Global Spillovers of a China Hard Landing
China?s economy has become larger and more interconnected with the rest of the world, thus raising the possibility that acute financial stress in China may lead to global financial instability. This paper analyzes the potential spillovers of such an event to the rest of the world with three methodologies: a VAR, an event study, and a DSGE model. We find the sentiment channel to be the primary spillover channel to the United States, affecting global risk aversion and asset prices such as equity prices and the dollar, in addition to modest real effects through the trade channel. In comparison, the combined financial and real effects to other advanced and emerging market economies, especially net commodity exporters, would be more consequential due to their larger direct exposure to China and more limited scope of monetary policy to respond to shocks.
AUTHORS: Ahmed, Shaghil; Correa, Ricardo; Dias, Daniel A.; Gornemann, Nils; Hoek, Jasper; Jain, Anil K.; Liu, Edith X.; Wong, Anna
Does a Data Quirk Inflate China’s Travel Services Deficit?
Chinese residents are increasingly traveling to see the rest of the world, logging a total of 162 million foreign visits in 2018, up from 57 million in 2010. Increased travel spending by Chinese residents is acting to reduce the country's trade surplus because such spending is counted as a services import. However, there appears to be a quirk in the Chinese data that results in a significant understatement of the offsetting spending by visitors to China (a services export). According to other Chinese data, this understatement totaled $85 billion in 2018. If so, China's deficit in travel services is smaller than officially reported, and its trade surplus correspondingly larger.
AUTHORS: Wong, Anna; Higgins, Matthew; Klitgaard, Thomas