China’s 12th five-year Plan calls for a shift in the country’s economic model from export-led growth towards greater reliance on domestic demand, particularly household consumption. Since the Plan’s introduction, China’s current-account surplus as a share of gross domestic product (GDP) has indeed fallen. But does that mean that China’s adjustment is on track?
According to the International Monetary Fund (IMF), the fall in China’s current-account surplus/GDP ratio has largely been the result of very high levels of investment, a weak global environment, and an increase in prices for commodity imports that has outpaced the rise in prices for Chinese manufactured goods. So the fall in China’s external surplus/GDP ratio does not represent economic “rebalancing”; on the contrary, IMF predicts that the ratio will rebound in 2013 and approach its pre-crisis level thereafter.
looking beyond borders 