China’s current account surplus already runs at 2 per cent of its enormous economy. If Beijing sought to increase that it would be problematic.
The G20 is supposed to be the premier forum for management of the global economy and the biggest economic issue in the world right now is a chronic lack of demand in China.the summit in New Delhi this weekend, sending premier Li Qiang instead, and highlighting in the process just how few options other countries will have if China tries to solve its economic challenges by falling back on demand from the rest of the world.
Rather than causing a slowdown elsewhere, the issue is what would happen if China tried to export its way to growth as it did in the 1990s and 2000s. China’s current account surplus already runs at 2 per cent of its enormous economy. If Beijing sought to increase that it would be problematic, but most especially if it did so via policies aimed at holding down the value of the renminbi exchange rate.The benefit of such policies to China is questionable these days.
More subtly, a current account surplus must be offset by capital flows. The recycling of China’s surplus contributed to easy financial conditions around the world before the 2007-08 financial crash, just as the export of German savings to countries such as Greece was part of the build-up to the eurozone crisis in 2011.What then can the rest of the G20 do about it, other than urge China to generate more demand of its own? There are few easy answers.
The rest of Asia competes with China in export markets so most nations, excepting pure commodity exporters, have something at stake.
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