Root Causes of China’s Trade Surplus and How to Balance It

Hua Min

Director of the Institute of World Economy, Fudan University, shanghai, China

Abstract:  This paper explains the root cause of China’s trade surplus and argues that it is rooted in structural factors. China’s dual economic structure and the relatively slow growth in wages due to the abundant supply of labor have led to a large supply glut between China’s domestic demand and output, which has been balanced by export. This is a structural problem that cannot be solved by currency appreciation or the readjustment of capital account deficits. A potentially viable option is to adjust the current account by developing a new opening-up system featuring more freedom and compliance.

Keywords: trade surplus, capital account deficit, current account adjustment, opening-up

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