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Les effets du changement de paradigme de la balance des paiements en Chine

Key points

  • China’s introduction to the global economy in 2000 had a profound effect on international trade patterns and as its economy continues to mature, we expect to see further shifting implications for the global economy.
  • China’s large savings (current account surplus) was considered a key driver of low rates in the 2000s. Its recent unwind has been almost as remarkable. The impact on rates has been obscured by the emergence of other large ‘saver’ nations.
  • China’s large accumulation of foreign exchange reserves was considered a factor in lowering US Treasury yields. Any impact from a modest reversal of the current account looks likely to be small enough not to have a material impact on yields.
  • China’s export of capital has created easy financing conditions for its emerging market neighbours. In addition, China’s increasing attraction of overseas portfolio flows has been blurred by its own large capital projects overseas.
  • The changing composition of Chinese growth should reflect in a shift in its import demand. We identify potential winners and losers from this adjustment – in terms of neighbouring nations and euro area producers.

China’s structural shift and the global repercussions

China’s introduction into the World Trade Organisation (WTO) in 2000 started a process which has since had a marked impact on global economies and markets alike. Its increased exposure to the global economy affected international inflation rates, interest rates, methods of production and global supply chains – with a corresponding social impact in many other areas. As China’s economy continues to mature and its current account surplus shifts towards balance with the prospect of an emerging deficit, we examine the global economic implications.

In broad terms, we expect three types of effect – with the magnitude specific to individual economies’ relative relationships with China. At a top level, we anticipate some upward pressure on interest rates. China looks likely to shift from a relatively large exporter of capital, in line with its large current account surpluses around the time of the financial crisis, to an importer of capital if its current account shifts into balance. This should increase competition for capital and drive interest rates higher.

In turn, a rise in global interest rates could have implications for countries running their own external imbalances. We consider the implications of China’s shift for other current account positions in the region.

The shift in China’s structural composition that underpins this move towards a current account balance or deficit should also have an effect. We believe that China is likely to experience both a relative reduction in investment growth and rise in consumption – as well as a fall in savings. This changing demand pattern should exert an economic impact on other companies if it is reflected in a relative shift in the composition of China’s imports from the rest of the world.

A comprehensive assessment of all the repercussions of China’s shift is beyond the scope of this paper. However, we consider key highlights for different regions. First, we examine the impact on global interest rates and specifically US Treasury yields, concluding that a gradual shift towards balance/deficit should have only a marginal effect on global and US rates. Second, we consider the implications of greater competition for capital on other emerging East Asian economies. We look in detail at those economies that have enjoyed the benefits of plentiful capital, either through foreign direct investment (FDI) or portfolio (capital) flows and consider whether China’s shift has implications for these economies. Finally, we will look at the potential compositional demand shifts and the impact on East Asian supply chains and exporters from the eurozone.

Bernanke’s savings glut

In 2005, the then Governor of the US Federal Reserve, (Fed), Ben Bernanke described a global “savings glut”. He suggested that emerging markets had built foreign exchange reserves in reaction to regional financial crises, or surging oil prices, shifting them towards an aggregated current account surplus of $205bn in 2003 from a deficit of $88bn in 1996 – a swing of $293bn. Bernanke went on to describe the role this likely played in widening the US current account deficit, through the transmission mechanisms of equity values, real interest rates and the exchange value of the dollar[1]. Markets have subsequently focused on the relationship between the global savings glut and real interest rates.

Exhibit 1 illustrates the total of countries reported current account surpluses and the Fed’s estimate of the real neutral rate, or r*. Of course, on a global level there should be neither surplus nor deficit, with one country’s surplus being another’s deficit. However, the issue is the asymmetry of the behaviour of economies with surpluses or deficits, with surplus economies tending to channel capital into safe-haven assets, while deficit nations are more supportive of consumption and investment spending. The net effect is a dampening in global aggregate demand. Exhibit 1 clearly illustrates the coincidence of growing current account surpluses and a lower level of the estimated neutral rate. China has contributed to this increase in total current account surpluses over recent decades. Over the period described by Bernanke, China’s current account surplus only rose from $37bn in 1997 to $43bn in 2003. However, it then went on to rise to average $250bn over the 2006 to 2016 period, peaking at $412bn in 2008, when the financial crisis hit. International Monetary Fund (IMF) data shows that the sum of countries reported current account surpluses rose by $400bn over the Bernanke period (1996 -2003), but the average of the last decade is $800bn higher again than in 2003, with China contributing just under a fifth of that increase.

Exhibit 2 provides a fuller overview of the total global current account surpluses, identifying those that consistently contributed in excess of 5% of this total. China’s contribution peaked at 23% in 2008 but was as high as 20% in 2015. However, since then its contribution has been on a declining trend, with China contributing just 3% in 2018.

There are two immediate implications. China’s reduced current account surplus has contributed to the stabilisation of the total global current account surpluses, a levelling off at around $1.5tn. This should have removed further downward pressure on global interest rates. However, the decline in China’s current account surplus has merely been replaced by other growing contributors. For example, the Japanese current account surplus accounts for 13% of the total, compared to around 7% between 2008 and 2015, while the German surplus has risen to 20% of the total in 2018 from a consistent deficit pre-2001.

Large as China’s current account surplus has been, and therefore as sizeable as its reduction has been, it is still a relatively small part of the global total. As a result, we would expect the impact on global interest rates to be relatively muted, albeit at the margin they should contribute to upward pressure on global neutral real rates.

No short-term US Treasury sell-off

As a direct corollary of this impact on interest rates, we analysed the impact of China’s structural shift on the outlook for US Treasuries. Exhibit 3 illustrates how China’s net purchases of US bonds – Treasuries, agencies, corporate and foreign bonds – reflected the size of the Chinese current account surplus. This is consistent with China’s practice – throughout the first decade and more of the 2000s – of accumulating FX reserves with current account surpluses to neutralise the impact on its currency. The exhibit also shows how most of this accumulation took place in US Treasury bonds, although China also accumulated agency bonds and corporate bonds in the years immediately before the financial crisis.

This suggests that as China’s current account surplus shrinks, its bond accumulation will continue to recede and ultimately reverse. Indeed, this appears to have happened between 2016 and 2017[2] and is underway in 2019.

Yet again, despite China’s size and holdings that remain in excess of $3trn[3], the size of flow from China into US Treasuries is still small relative to overall flows (Exhibit 4). If China becomes a net seller of Treasuries as its current account moves towards deficit, we would expect such sales to have only a marginal impact on US Treasury pricing. Only if there is a quicker sell-off, in response to a more structural reduction of its Treasury reserve holdings, would we expect to see a more visible impact on yields.

Nevertheless, if we continue to extrapolate China’s current account shift into the long term – based on an expectation of uninterrupted maturing and development of the economy – we would consider the likelihood of a long-term reduction in FX reserves. There would also be a rising possibility of alternatives to the dollar as a sole reserve currency; both factors that could present some longer-term upward pressure on US interest rates and yields.

A more local impact

The adjustment of China’s current account and associated capital flows should still be relatively small on a global level but China is likely to have a more visible impact on its local neighbours given its dominant regional position.


Considering the largest of China’s immediate neighbours in the emerging Asian area, Exhibit 5 shows some modest trend decline in total current account surpluses since 2010 – interrupted by China’s more vigorous stimulus to address slowing activity around 2015/2016. Of the larger emerging market Asian economies, we identified three distinct groups:

  1. Taiwan, Malaysia, Singapore and Thailand, which have had persistent current account surpluses, driven by high levels of trade with well diversified trade profiles.
  2. Indonesia and the Philippines whose steady current account surpluses until 2012 were partly supported by resilient overseas workers’ remittances. More recently, these surpluses have shrunk, amidst resilient domestic demand.
  3. India - the only economy with a persistent current account deficit, which has a high tendency to fluctuate with sharp movements in oil and gold prices.

Capital shortfall for close neighbours?

One of the consequences of the gradual fall in China’s current account surplus since 2010 is a coincident narrowing of the capital account deficit. As its external surplus shrank, the amount of surplus savings needed to be recycled offshore dwindled. At the same time, the selective opening up of the financial market has put China on global investors’ radars and started to generate portfolio investment flows into the country on a gross basis. Exhibit 6 illustrates this trend for China and is suggestive that this might have happened at the expense of diminishing inflows into wider Asia.

In isolation, we would have expected this increased competition for overseas capital to be a factor which would have reduced negative contributions to individual countries current accounts, for example by boosting savings and reducing investment. But this is contrary to the modest dwindling of current account surpluses seen in Asian emerging market current accounts over the last decade.

This apparent contradiction looks likely to be explained by China’s own relaxation of outward direct investment (ODI) regulations back in the 2000s, and its subsequent increasingly dominant position in global foreign direct investment. In addition to the launch of China’s Belt and Road Initiative in 2013, China became the world’s second largest outward direct investor, immediately after the US. Exhibit 7 highlights that China’s ODI has risen sharply over time, especially in Asia[4], increasing to around $120bn by 2016.

Looking ahead, a continued deterioration in China’s current account would be accompanied by a strengthening in its capital account, allowing it to increasingly attract portfolio flows. This will likely boost competition for capital in the region. If this is increasingly accompanied by smaller ODI flows from China into the region, the impact should be more visible on the region’s current accounts – likely requiring a move towards a greater surplus for most economies, beyond the large East Asian trading hubs.

Composition of Asian emerging market exports

As China rebalances from an investment-driven economy to one of consumption-powered growth, the shift in composition is likely to be reflected in its export demand. Indeed, with this process already underway it is instructive to note that the trend for exports of capital goods – as a share of total exports to China – has reversed since 2010 (once again with some hiatus in 2015/2016), coinciding with the reversal of China’s growth composition (Exhibit 8).

Focusing on individual countries, we can differentiate between countries’ whose export exposure to China is more comprised of consumption or investment goods to suggest possible winners and losers from China’s ongoing transition. Exhibit 9[5] shows those countries with greater consumption export links (Thailand and India) and those with greater investment exposures that could see slower export growth in the future (Korea, Taiwan and Singapore).

Composition of EM Asian exports

While consumption has been the main driver of China’s economic growth in recent years, the nation has also been increasingly focusing on higher-end related consumption including services. Within services, tourism has always been the biggest sector of focus for Asian economies. Since 2001, China’s boost to tourism in the region has been substantial. In fact, Chinese tourists’ share of total tourism has increased by up to approximately 1,600% and 2,600% for Philippines and Indonesia. In comparison, Chinese tourist arrivals in the US have risen by just over 200% (Exhibit 10).

China’s influence on European demand

The euro area trade balance with China deteriorated in the run-up to the global financial crisis from -0.5% of GDP in 2000 to -1.2% of GDP in 2008. Since then, the trade deficit with China has narrowed marginally, hovering between -0.9 and -1.1 % of GDP (Exhibit 11). Exports and imports have grown similarly since this period, explaining this broadly stable outcome and suggesting that despite trade intensification with China, the euro area has not seen a net boost to economic growth from the gradual fall in China’s current account surplus.

However, the broadly stable trade balance with China masks a significant shift in the composition of exports. Similar to that in Asia, exports of consumer goods have been on a clear upward trend across countries since 2005, reflecting the rebalancing of the Chinese economy (Exhibit 12). This has been reflected in a declining share of capital goods exports, albeit in mode subdued fashion (Exhibit 13).

On a country-by-country basis, this compositional shift has had the biggest impact on Germany. Germany is the eurozone country most exposed to China, as 6.7% of German exports go to China, versus 4.1% for France and 3% for Italy. Its export composition has remained broadly stable since 2013, with capital and consumer goods exports accounting for 57% and 27% of total exports respectively. This stable composition partly explains the current German economic weakness, in the face of China’s transitioning to a less capex and more consumption-based growth outlook. Exhibit 14, which shows the consumption and investment exposures to China in value added terms, illustrates this same point.

As we anticipate a continuation of this compositional shift in China over the coming decade, the relative effect on eurozone countries is likely to continue, unless countries are able to adjust their export mix. Germany’s relatively large exposure to China’s capex cycle should continue to expose it to a decelerating trend. However, those countries with a relatively large consumption to investment goods share should benefit from China’s ongoing shift towards greater consumption, with France appearing as a potential key beneficiary.

[1] Bernanke, B. “The Global Saving Glut and the US Current Account Deficit”, March 2005

[2] The effect in 2016 was likely exaggerated by additional reserve selling to defend the currency against capital outflows that accelerated in that year as fears about renminbi devaluation grew.

[3] IMF, Aug 2019

[4] Wider Asia includes over 30 economies, including Japan, Turkey, Pakistan etc. Considering the largest eight emerging market Asian economies, China’s ODI was much smaller: $16bn in 2015.

[5] As 2011 was the most up to date data available on TiVA, it is recommended to treat with caution.



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