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China

The cost of US debt and rebalancing Asian growth

Author: Peter Warr, ANU Since the Asian financial crisis of 1997–98, the countries of East Asia have, in aggregate, run huge annual current account surpluses. The counterparts of these surpluses, including Europe and the US , have been correspondingly huge current account deficits. This process has continued for over a decade and a half, and huge stocks of debt have accumulated. Much of this is US government debt owed to the central banks of the East Asian countries. About half of it is held by China . It is expected that the debt will eventually be repaid and this implies that the surpluses must eventually turn into deficits, and vice versa. Indefinite accumulation of debt is unsustainable. Current account imbalances are not necessarily a problem. They reflect what international economists call international inter-temporal trade. One country (the surplus country) is exchanging current goods and services for financial assets, which are claims on goods and services in the future. The other country (the deficit country) is doing the reverse. Mutual gains from trade arise from these transactions because the initial circumstances of the countries involved are not the same. For some countries it makes sense to save more now, because they have a younger working age population, for example, in order to consume or invest more later. For others, the reverse applies. In this respect, inter-temporal trade is not fundamentally different from contemporaneous trade in goods and services. But basic differences do exist. The time dimension can mean that the individuals obliged to repay a debt may not be the same as those who incurred it. So the outcomes chosen by this generation of Americans, for example, can create an unwelcome problem for the next generation. Many observers regard the present global imbalances as unsustainable, even in the short run. First, East Asian countries may be unwilling to continue to accumulate US debt and even wish to reduce the stock they hold. Second, the US may be unwilling to allow this accumulation of indebtedness to continue and seek to reduce the stock of debt they currently owe. The two are not mutually exclusive and could happen at the same time. They both rest on the fear that the burden of debt servicing might suddenly become intolerable for the debtors, notably the US, meaning an unexpectedly rapid adjustment becomes necessary. East Asia’s current account surpluses may have to decline, and even turn into deficits, very quickly. This must happen eventually — the question is when . It might not be a problem if it happens ‘gradually and predictably’. But if it happens ‘soon’, at an unexpectedly rapid rate, there may be a serious adjustment problem involved. If the problem is anticipated it might be possible to avoid the large-scale unemployment and other social costs that would otherwise result. But these events are uncertain, and ‘growth rebalancing’ is essentially a problem of risk management. From the perspective of the East Asian countries, the interest in growth rebalancing is motivated by two concerns. First, there is the possibility that current account surpluses (positive flows) will turn into deficits (negative flows) quickly, leading to social disruption and other adjustment costs. Second, there is the fear that the stock of debt owed to them may become so high that it becomes impossible to repay. The first concern is more immediate. Especially since the Asian financial crisis, the countries of Asia and the Pacific have, to varying extents, focused their production towards exports and away from their domestic markets. But if the current account surpluses are to be reduced significantly, or even reversed, then resources must be reallocated towards production for the domestic market to avoid massive unemployment. For the deficit countries the problem is exactly the reverse. The policy imperative is similar in both cases: avoid the disruption — especially large-scale unemployment — resulting from having to adjust too rapidly. The issue is not really whether such growth rebalancing will occur, but when, at what rate and by what means. In the current global environment Asia is vulnerable to such an adjustment problem arising at short notice. Some ‘rebalancing’ now — away from reliance on external demand and towards domestic demand — can reduce this vulnerability by reducing Asia’s export dependence. A simple model of the global demand and supply of loanable funds can be used to bring out a key feature of the adjustment options. Suppose the deficit countries, principally the US, wish to reduce their current account deficits. Is it better for the US to make the adjustment itself or attempt to induce Asia to adjust by reducing its surplus? If the US adjusts, its excess demand for funds declines, the level of its current account deficit declines and world interest rates fall. If Asia contracts its excess supply of funds, the same combination of current account balances may result, but with an increase in world interest rates. Given the huge level of its stock of debt, the US has a strong interest in low world interest rates. It should therefore do the adjusting itself and not be berating Asia to reduce its current account surpluses. Peter Warr is John Crawford Professor of Agricultural Economics and Head of the Arndt-Corden Department of Economics in the Crawford School of Economics and Government at ANU. How should G20 help global rebalancing? Asian Development Bank and the invention of a new Asian growth paradigm The Greek tragedy: Global debt crisis and balance sheets

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Author: Peter Warr, ANU

Since the Asian financial crisis of 1997–98, the countries of East Asia have, in aggregate, run huge annual current account surpluses.

The counterparts of these surpluses, including Europe and the US, have been correspondingly huge current account deficits. This process has continued for over a decade and a half, and huge stocks of debt have accumulated. Much of this is US government debt owed to the central banks of the East Asian countries. About half of it is held by China. It is expected that the debt will eventually be repaid and this implies that the surpluses must eventually turn into deficits, and vice versa. Indefinite accumulation of debt is unsustainable.

Current account imbalances are not necessarily a problem. They reflect what international economists call international inter-temporal trade. One country (the surplus country) is exchanging current goods and services for financial assets, which are claims on goods and services in the future. The other country (the deficit country) is doing the reverse. Mutual gains from trade arise from these transactions because the initial circumstances of the countries involved are not the same. For some countries it makes sense to save more now, because they have a younger working age population, for example, in order to consume or invest more later. For others, the reverse applies. In this respect, inter-temporal trade is not fundamentally different from contemporaneous trade in goods and services. But basic differences do exist. The time dimension can mean that the individuals obliged to repay a debt may not be the same as those who incurred it. So the outcomes chosen by this generation of Americans, for example, can create an unwelcome problem for the next generation.

Many observers regard the present global imbalances as unsustainable, even in the short run. First, East Asian countries may be unwilling to continue to accumulate US debt and even wish to reduce the stock they hold. Second, the US may be unwilling to allow this accumulation of indebtedness to continue and seek to reduce the stock of debt they currently owe. The two are not mutually exclusive and could happen at the same time. They both rest on the fear that the burden of debt servicing might suddenly become intolerable for the debtors, notably the US, meaning an unexpectedly rapid adjustment becomes necessary.

East Asia’s current account surpluses may have to decline, and even turn into deficits, very quickly. This must happen eventually — the question is when. It might not be a problem if it happens ‘gradually and predictably’. But if it happens ‘soon’, at an unexpectedly rapid rate, there may be a serious adjustment problem involved. If the problem is anticipated it might be possible to avoid the large-scale unemployment and other social costs that would otherwise result. But these events are uncertain, and ‘growth rebalancing’ is essentially a problem of risk management.

From the perspective of the East Asian countries, the interest in growth rebalancing is motivated by two concerns. First, there is the possibility that current account surpluses (positive flows) will turn into deficits (negative flows) quickly, leading to social disruption and other adjustment costs. Second, there is the fear that the stock of debt owed to them may become so high that it becomes impossible to repay. The first concern is more immediate.

Especially since the Asian financial crisis, the countries of Asia and the Pacific have, to varying extents, focused their production towards exports and away from their domestic markets. But if the current account surpluses are to be reduced significantly, or even reversed, then resources must be reallocated towards production for the domestic market to avoid massive unemployment. For the deficit countries the problem is exactly the reverse. The policy imperative is similar in both cases: avoid the disruption — especially large-scale unemployment — resulting from having to adjust too rapidly.

The issue is not really whether such growth rebalancing will occur, but when, at what rate and by what means. In the current global environment Asia is vulnerable to such an adjustment problem arising at short notice. Some ‘rebalancing’ now — away from reliance on external demand and towards domestic demand — can reduce this vulnerability by reducing Asia’s export dependence.

A simple model of the global demand and supply of loanable funds can be used to bring out a key feature of the adjustment options. Suppose the deficit countries, principally the US, wish to reduce their current account deficits. Is it better for the US to make the adjustment itself or attempt to induce Asia to adjust by reducing its surplus? If the US adjusts, its excess demand for funds declines, the level of its current account deficit declines and world interest rates fall. If Asia contracts its excess supply of funds, the same combination of current account balances may result, but with an increase in world interest rates.

Given the huge level of its stock of debt, the US has a strong interest in low world interest rates. It should therefore do the adjusting itself and not be berating Asia to reduce its current account surpluses.

Peter Warr is John Crawford Professor of Agricultural Economics and Head of the Arndt-Corden Department of Economics in the Crawford School of Economics and Government at ANU.

  1. How should G20 help global rebalancing?
  2. Asian Development Bank and the invention of a new Asian growth paradigm
  3. The Greek tragedy: Global debt crisis and balance sheets

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The cost of US debt and rebalancing Asian growth

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Trends and Future Prospects of Bilateral Direct Investment between China and Germany

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China and Germany experienced a decline in direct investment in 2023 due to global economic uncertainty and policy changes. Despite this, China remains an attractive destination for German FDI. Key industries like automotive and advanced manufacturing continue to draw investors, although FDI outflows from Germany to China decreased by 30% in the first three quarters of 2023. Despite this, the actual use of foreign capital from Germany to China increased by 21% in the same period according to MOFCOM. The Deutsche Bundesbank’s FDI data and MOFCOM’s actual use of foreign capital provide different perspectives on the investment trends between the two countries.


Direct investment between China and Germany declined in 2023, due to a range of factors from global economic uncertainty to policy changes. However, China remains an important destination for German foreign direct investment (FDI), and key industries in both countries continue to excite investors. We look at the latest direct investment data between Germany and China to analyze the latest trends and discuss key factors that could shape future business and commercial ties.

Direct investment between China and Germany has undergone profound changes over the past decade. An increasingly complex investment environment for companies in both countries has led to falling two-way FDI figures in the first three quarters of 2023, in stark contrast to positive trends seen in 2022.

At the same time, industries with high growth potential, such as automotive and advanced manufacturing, continue to attract German companies to China, and high levels of reinvested earnings suggest established firms are doubling down on their commitments in the Chinese market. In Germany, the potential for electric vehicle (EV) sales is buoying otherwise low investment among Chinese companies.

According to data from Deutsche Bundesbank, Germany’s central bank, total FDI outflows from Germany to China fell in the first three quarters of 2023, declining by 30 percent to a total of EUR 7.98 billion.

This is a marked reversal of trends from 2022, when FDI flows from Germany to China reached a record EUR 11.4 billion, up 14.7 percent year-on-year.

However, according to China’s Ministry of Commerce (MOFCOM), the actual use of foreign capital from Germany to China increased by 21 percent year-on-year in the first eight months of 2023. The Deutsche Bundesbank’s FDI data, which follows standards set by the IMF, the OECD, and the European Central Bank (ECB), includes a broader scope of transactions within its direct investment data, including, broadly, direct investment positions, direct investment income flows, and direct investment financial flows.

Meanwhile, the actual use of foreign capital recorded by MOFCOM includes contracted foreign capital that has been concluded, including the registered and working capital paid by foreign investors, as well as the transaction consideration paid for the transferred equity of domestic investors.

This article is republished from China Briefing. Read the rest of the original article.

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

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Manila blasts China’s ‘unprovoked aggression’ in latest South China Sea incident

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China’s coast guard on Saturday fired a water cannon at a Philippine supply boat in disputed waters in the South China Sea, causing “significant damages to the vessel” and injuring its crew, the Philippine coast guard said.

Manila was attempting to resupply troops stationed on a ship at the Second Thomas Shoal, known locally as Ayungin Shoal, when the Chinese coast guard and maritime militia “harassed, blocked, deployed water cannons, and executed dangerous maneuvers against the routine RoRe (rotation and resupply) mission,” said the Philippine National Task Force for the West Philippine Sea.

The West Philippine Sea is the part of the South China Sea that Manila claims as its jurisdiction.

The Chinese coast guard also set up “a floating barrier” to block access to shoal where Manila ran aground an old warship, BRP Sierra Madre, to serve as a military outpost.

The Philippine task force condemned China’s “unprovoked aggression, coercion, and dangerous maneuvers.”

Philippines’ RoRe missions have been regularly blocked by China’s coast guard, but this is the first time a barrier was set up near the shoal. 

The Philippine coast guard nevertheless claimed that the mission on Saturday was accomplished.

Potential consequences

The Second Thomas Shoal lies within the country’s exclusive economic zone where Manila holds sovereign rights. 

China, however, claims historic rights over most of the South China Sea, including the Spratly archipelago, which the shoal forms a part of.

A Chinese foreign ministry’s spokesperson on Saturday said the Philippine supply vessel “intruded” into the waters near the shoal, called Ren’ai Jiao in Chinese, “without permission from the Chinese government.”

“China coast guard took necessary measures at sea in accordance with law to safeguard China’s rights, firmly obstructed the Philippines’ vessels, and foiled the Philippines’ attempt,” the ministry said.

“If the Philippines insists on going its own way, China will continue to adopt resolute measures,” the spokesperson said, warning that Manila “should be prepared to bear all potential consequences.”

Chinese Maritime Militia vessels near the Second Thomas Shoal in the South China Sea, March 5, 2024. (Adrian Portugal/Reuters)

U.S. Ambassador to the Philippines MaryKay Carlson wrote on social media platform X that her country “stands with the Philippines” against China’s maneuvers.

Beijing’s “interference with the Philippines’ freedom of navigation violates international law and threatens a free and open Indo-Pacific,” she wrote.

Australian Ambassador to the Philippines Hae Kyong Yu also said that Canberra shares the Philippines’ “serious concerns about dangerous conduct by China’s vessels adjacent to Second Thomas Shoal.” 

“This is part of a pattern of deeply concerning behavior,” Yu wrote on X.

Edited by Jim Snyder.

Read the rest of this article here >>> Manila blasts China’s ‘unprovoked aggression’ in latest South China Sea incident

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Foreigners in China: 2024 Living and Working Guidelines

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China’s Ministry of Commerce released updated guidelines for foreign businesspersons living and working in China in 2024. The guidelines cover accommodations, visas, work permits, and emergency protocols. It also outlines responsibilities regarding social security premiums and individual income tax obligations. prompt registration for temporary accommodation is required upon arrival.


The updated 2024 guidelines for foreign businesspersons living and working in China, released by the country’s Ministry of Commerce, outline essential procedures and considerations covering accommodations, visas, work permits, and emergency protocols.

On January 25, 2024, China’s Ministry of Commerce (MOFCOM) released the latest version of the Guidelines for Foreign Businessmen to Live and Work in China (hereinafter referred to as the “guidelines”).

The document is divided into four main sections, labeled as:

Furthermore, the guidelines elucidate the regulatory framework governing foreign businessperson’s responsibilities concerning social security premiums and individual income tax obligations.

This article provides a comprehensive overview of the guidelines, delving into their significance and implications for foreign businesspersons in China.

Upon arrival in China, prompt registration for temporary accommodation is required.

If staying in a hotel, registration can be facilitated by the hotel staff upon presentation of a valid passport or international travel documents.

This article is republished from China Briefing. Read the rest of the original article.

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

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