China & World Economy  / 79–103, Vol. 27,  No. 6, 2019

Global Imbalance Adjustment: Stylized Facts, Driving Factors and China’s Prospects

Ming Zhang, Yao Liu

Abstract

This paper summarizes global imbalance adjustment after the GFC and analyzes the evolution of balance of payments using a four-quadrant diagram. We construct the framework of a stock adjustment mechanism to analyze the main driving factors for the imbalance in surplus/deficit countries and debtors/creditors in an attempt to determine the sustainability of imbalance adjustment. We find that imbalances have been reduced to some extent, but most countries have not achieved rebalance after the global financial crisis. Therefore, we propose an ideal path for global imbalance adjustment and summarize the policy practices of representative countries that have followed this route. Based on our analysis, we suggest that China should learn from the Australian experience and adopt a macro-prudential assessment policy, actively adjust the domestic economic structure and optimize the structure of balance of payments.