Hot Topics for the Future of PRC and Hong Kong, China

Abstract

At the end of 2004, the macroeconomic balance in the People’s Republic of China (PRC) raises some interesting options. The external sector enjoys a huge surplus, with significant increases in the current and capital accounts (almost $46 billion and $53 bill. respectively, last year). Accordingly, foreign exchange reserves in 2003 amounted to a staggering $400 billion. Turning to the domestic balance, the increase of fixed investment has been significant, although consumption is sluggish. (The ratio of fixed investments to GDP increased from 35% in the 1980s, and 39% for the 90s to 47% last year; while the consumption ratio, once more than 50% in the 80s, it is now at just 43%.) This indicates overinvestment in the external sector is offset by over saving domestically. However, since investment is overheating in some places and the government is running a budget deficit, only savings by individuals can absorb all of the overinvestment from external and domestic sectors.