By Anoop Singh
The sharp reduction in China’s current account surplus over recent years has ignited a flurry of speculation about whether the world’s second largest economy has achieved the fundamental, economic rebalancing which many have been pressing for. That is, rebalancing in terms of reduced dependence on exports, and increasing reliance on the domestic market by boosting consumer demand.
My own opinion is that it is too early to say. True, China’s current account surplus fell to around 2.8 percent of gross domestic product in 2011, from a pre-crisis peak of more than 10 percent in 2007. And while the reduction in China’s current account surplus is welcome news, we remain concerned that these changes may not represent a sustained, downward trend.
One possible sign of a durable turnaround in China’s current account surplus would be a pickup in consumption growth but there is little evidence that consumption is rising as a share of GDP.
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