China’s Large Net Foreign Assets an indication of Economic Weakness
December 09, 2007
Dec 10, 2007 -- /prbuzz/ --Melbourne, Australia – 10 December 2007 – According to a new study published in the Wiley-Blackwell journal – China & World Economy – China’s incredible rise as a net creditor at such an early stage of development is very rare; and might actually reflect weakness rather than strength.



China’s international investment position has been characterized by its huge and increasing net foreign assets – and despite its low per capita incomes and relative scarcity of capital – is positioned as a net creditor. Her net foreign assets in 2006 accounted for 25% of the country’s GDP growth – in stark contrast to many countries who hold a higher GDP per capita and still have relatively large net foreign liabilities.



Author of “China as a Net Creditor: An Indication of Strength or Weaknesses?” Mr. Xin Wang said, “There is no reason for China to be complacent in spite of her large current account surplus and quick build-up of foreign exchange reserves. As a very poor country in terms of GDP per capita, China continues to provide large amount of capital to the outside world- including the richest countries. It is quite unusual and may be reflective of deeply-rooted institutional and structural problems.”



Some of the issue China face include underdeveloped capital markets, biased resource allocation and a defective social security system – all of which have contributed to her rapid increase in national savings which have not been fully and efficiently utilized. The high cost of China’s foreign liabilities and her corresponding low returns on her foreign assets also mean that China’s has yet to generate positive return, while facing potentially large exchange risks.



China must readjust her development model and make improvements to her social security system in order to put the country’s economic development on a more solid base. Some of the recommendations include the gradual opening up of domestic financial markets, loosening of restrictions on domestic private firms, adjusting preferential policies enjoyed by foreign-funded firms as well as gradually enlarging the channels overseas investments to build up China’s domestic asset management capabilities.



Mr. Wang adds, “China must speed up her economic reforms and allow the market to play a fundamental role in resource allocation. Only then will the resulting decrease of net foreign assets no longer become a cause for concern, but rather, a sign of good times.”



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This paper is published in the November-December 2007 issue of China & World Economy.

Media wishing to receive a PDF or schedule media interviews with the author should contact Alina Boey, PR & Communications Manager at This email address is being protected from spam bots, you need Javascript enabled to view it or phone 613-83591046.



About China & World Economy
China & World Economy was launched in 1993 by the Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS). Originally self-published, the journal begins its official publishing partnership with Blackwell Publishing in 2006. Published six times a year, this journal combines original academic research works with policy review articles - many of its authors are distinguished Chinese economists from both academic and governmental circles. As the only English language journal in China devoted to the topic of Chinese economics, readers can expect objective, analytical and up-to-date quality content. With distinguished contributors such as economists from both the government and academic circles, the journal will provide an informed and balanced window on China, and will undoubtedly become essential reading for all those interested in China's development.



About Wiley-Blackwell
Wiley-Blackwell was formed in February 2007 as a result of the acquisition of Blackwell Publishing Ltd. by John Wiley & Sons, Inc., and its merger with Wiley’s Scientific, Technical, and Medical business. Together, the companies have created a global publishing business with deep strength in every major academic and professional field. Wiley-Blackwell publishes approximately 1,400 scholarly peer-reviewed journals and an extensive collection of books with global appeal.
About the Press Release
According to a new study, China’s incredible rise as a net creditor at such an early stage of development is very rare; and might actually reflect weakness rather than strength.


 
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