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I. recovery fIrmly on track
The region’s recovery is firmly on track, with real GDP, industrial production and exports above pre-crisis levels. But employment in manufacturing—which typically pays higher wages than jobs in other sectors—has lagged, suggesting employers are still cautious about the durability of global growth. Sluggish manufacturing growth, combined with the negative impact of rising food and fuel prices, could slow progress reducing poverty across the region this year.
Growth surprises on the upside
Output growth throughout developing East Asia moderated in the second half of 2010 but was still surprisingly strong. This positive outcome reflected sustained monetary and fiscal stimulus measures and stronger growth in demand abroad, both of which partly offset the return of capacity utilization to pre-crisis levels. Real GDP growth in developing East Asia and Pacific amounted to 9.6 percent for 2010 as a whole (Figure 1and Table 1), 0.7 percentage points higher than our estimate in November 2010 (see our East Asia update from November 2010, Robust Recovery, Rising Risks). Estimates for growth among the G-3 (the U.S., the EU, and Japan) were also revised up by a similar amount, thanks largely to a markedly better outcomes in the eurozone and Japan.
figure 1. Real GDP growth moderated…
percent change year-on-year
table 1. …but for the full year 2010 was close to pre-crisis levels and East Asia remains the fastest growing global region
15 10 5 0 -5 -10
Developing East Asia Excluding China Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Excluding India
1981 1986 1991 1996 2001 2006 2011
8.5 4.7 3.9 4.0 4.2 4.8 3.7 5.2 0.2
7.4 1.2 -6.6 -2.2 3.1 7.0 4.3 1.7 -3.4
9.6 6.9 4.7 5.7 3.3 8.7 5.1 4.7 2.8
Sub-Saharan Africa High Income Countries
Source: World Bank Global Economic Prospects 2011.
Developing East Asia excluding China
Developing East Asia
Sources: CEIC and World Bank staff calculations.
Growth in 2010 was broad-based. Seven countries in developing East Asia grew by 7 percent or more last year, including Thailand and Malaysia, the only middle-income countries in the region whose economies had contracted in 2009. Real GDP grew 7.8 percent in both countries in 2010, driven equally by domestic and external demand and accommodative policies. In the Philippines, a surge in consumer and business optimism in part due to the presidential elections, and stronger and more robust remittance growth were additional factors that underpinned the country’s fastest growth in more than three decades. The post-crisis rebound in 2010 was faster than the recovery from previous crisis episodes, including after the 1997-98 Asian financial crisis. Much of this rebound reflected the solid macroeconomic foundations that existed before the crisis, plentiful fiscal space, low external and government debt, and the strong balance sheets
WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2011, VOL. 1
The “noughties” began with the region emerging from one crisis and ended with another. In 1999. RECOVERY FIRMLY ON TRACK 5 Box 1. output in seven countries in developing East Asia expanded by more than 7 percent.I. And with large parts of the developed world still tackling the consequences of excessive debts and with banks rebuilding their balance sheets. led by China foreign exchange reserves in percent of broad money East Asia excluding China Crisis-affected China China 2009 1999 0 20 40 60 80 100 2010 0 1999 10 20 30 Sources: CEIC. period average Per capita GDP relative to the OECD has risen throughout East Asia but markedly only in China. The greatest economic and financial crisis in more than half a century had a temporary impact on the region which governments. and World Bank staff estimates. Haver. Philippines. but picked up in Lao and Cambodia percent change y-y. companies.. as final demand within East Asia and in other developing regions has surged exports to high-income economies as percent of total Countries added to foreign exchange reserves. output in developing East Asia excluding China rose by 3. Growth moderated in China and most other middle-income countries after the 1997-98 Asian financial crisis. and Korea. Note: Crisis-affected: Indonesia. national authorities.. after contractions in 1998 of 13 percent in Indonesia and 7 percent or more in Thailand. East Asia remains the fastest-growing region in the world. Malaysia. after contractions of about 2 percent in Malaysia and Thailand in 2009 and a modest slowdown in Indonesia. current prices Low-income East Asia excluding China Crisis-affected China 0 5 10 20 Low-income East Asia excluding China Crisis-affected China Latin America East Europe & Central Asia 1999 2010 1999 2010 0 10 15 Investment declined after the 1997-98 crisis in most middle-income countries but rose in China. SHAPING THE FUTURE .4 percent. Vietnam and the low-income countries in percent of GDP Exports have risen as a share of GDP only in China… in percent of GDP Low-income East Asia excluding China East Asia excluding China Crisis-affected Crisis-affected China 0 10 20 30 40 50 China 0 10 20 30 40 50 2009 1999 1996 2009 1999 … but exports to the high-income economies fell as a share of total exports. Then and now: the 1997-98 Asian financial crisis and the global economic crisis What a difference a decade makes. and households took in their stride. percent relative to OECD. and Thailand. SECURING THE PRESENT. Malaysia. Korea. In 2010.
China will continue to present a unique opportunity that the countries in the region must seize. producing about 10 million tons more than each of the OECD countries combined and the rest of the world. • The country with the largest installed wind energy capacity. Box 2. • The largest consumer of refined metals (41 percent of the world).1 Despite efforts by the authorities to cool the pace of expansion. more than the OECD combined. China’s GDP is just one-tenth that of Japan. 1 .6 I. but U. WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2011. Malaysia. In Cambodia. But whether this abundance will ultimately elevate 1 In purchasing power parity (PPP) that adjusts for the different purchasing power of the dollar across countries. China’s rapid expansion and its rising inflation rate presents a growing risk for the region. This strong demand is transforming the economies of Lao. For most of these countries. Rapid expansion also returned to Cambodia and Mongolia. given the moderate expansion in activity in high-income economies and the much increased final demand in China for goods produced in the region. growth has remained firm since mid-2010 and amounted to 10. Over the medium term. An increasingly diversified global customer base also helped (Box 1). the recovery in garment exports and in tourist arrivals contributed to an estimated real growth rate of about 6. Adjusting for purchasing power parity.3 percent for the year as a whole. In Mongolia.S. however. with about $100 billion in 2010. • The largest exporter after overtaking Germany in 2009. In per capita terms. Per capita energy consumption in China is just one-fourth of that in the U. oil consumption is double that of China. up from 9 percent in 2009. RECOVERY FIRMLY ON TRACK of companies and commercial banks. led to an estimated 6 percent expansion despite severe weather-related losses in the livestock sector. Timor-Leste.. 2011. More generally. China became the second largest economy in the world measured at market exchange rates. at market exchange rates since 2010. Mongolia..S.on January 27. Net exports made a small positive contribution to growth according to official estimates in contrast with the substantially negative contribution of 4 percent in 2009. Thanks to continued strong growth. a topic to which we will return in Chapter IV.7 percent in 2010 after the first contraction in almost three decades.S. whose economies contracted in 2009. • The largest global energy user after surpassing the U.S.S.S. In the near term. VOL. The emergence of China as a major source of final demand in the region and globally has been equally crucial. PNG. in value added measured in current prices. China became the world’s second largest economy in 2002. the rebound among the region’s resource-rich economies reflected the rapid increase in global demand for commodities. • The second largest recipient of FDI after the U. and the commodity-producing regions in Indonesia. Ten years ago. resurgent foreign investment in the extractive industries supported by thus far prudent fiscal policy and renewed progress on structural reforms. China’s GDP per capita is one-fifth that of Japan and 14 percent of the level in the U. China’s energy consumption was half that of the U. in 2010.S.S. • The largest manufacturer followed by the U. a topic to which we will return in later sections (Box 2). • The world’s largest steel producer since 2009. resource riches have helped boost living standards this decade. and Vietnam. • Sovereign risk rated on par with Japan after Standard and Poors downgraded Japan to BB. The rise of China The most populous country in the world and the richest country until the early 19th century is now: • The world’s second largest economy after the U.
3 6.7 6.7 the Middle East of late have contributed to substantially Sources: CEIC and World Bank staff projections.3 -2.1 7.3 5.3 5. several key risks remain in the highMongolia -1.0 -3.3 6.3 6.6 income economies. real GDP growth is likely to amount to about 5.5 persistent banking and sovereign stress in the Developing East Asia excl China 1.4 4.4 9.0 6. albeit unevenly and at a slower pace than output. SECURING THE PRESENT.3 8.6 -1. rather than stagnation in their current middle-income status.5 5. Prudent fiscal management of windfalls and incentives that create genuine alternative industries and sources of income will ultimately be crucial for ensuring that commodity riches do not become a curse. And given the links between energy and food prices.5 0. RECOVERY FIRMLY ON TRACK 7 countries to high-income status is yet to be seen in the region.S.5 7.8 5.7 5.5 5. Returning to a more buoyant growth path in the middle-income countries other than China remains a key priority for governments.2 6. including those resulting from Papua New Guinea 5. In the rest of developing East Asia.6 7.7 7.7 1.1 10.8 6.2 6.3 7.2 7. Last year’s growth outcome in developing East Asia was surprisingly positive.3 7. In the high-income countries.S.0 7. Industrial employment and wages are picking up Industrial employment has begun to pick up in most middle-income countries in the region. albeit a bit faster than was expected earlier due to the new fiscal stimulus package in the U.7 5. Since many manufacturers in Malaysia and Thailand are part of regional or global production networks that are dependent on demand from the high-income economies.3 percent.7 6.6 10. and Japan.5 6. Throughout East Asia.. Growth in 2010 was broad-based percent change year-on-year Estimate Forecast 2009 2010 2011 2012 Developing East Asia China Indonesia Malaysia Philippines Thailand Vietnam Cambodia Fiji Lao PDR 7.9 5.7 0. higher oil prices and still have the potential of further disruption on commodity price volatility than is currently appreciated.8 6.1 -2. the rise in inflation at varying speeds and the volatility of commodity prices. SHAPING THE FUTURE .3 percent in 2010 and about 11 percent on average during 2000–2007 as measures to cool the property market and contain inflation.4 8. driven by domestic demand (and by remittances in the latter country).4 2. industrial employment in Indonesia and Philippines has recovered. take firmer hold.4 4.2 9.1 8.8 2. these developments in the Middle East could have implications that extend well beyond energy. including more monetary tightening than most projections call for.9 8.4 2.0 3.7 peripheral eurozone and still unresolved issues with Memoranda residential real estate in the U. the recovery is firming up but is more likely than not to continue at a sluggish pace.5 1. one that they must achieve to enable a transition to high-income status in the foreseeable future. and capital inflows will likely require more determined policy actions this year.2 4.5 9. little changed from the pace during 2000-2007 but down from 7 percent in 2010 and 7. table 2. but the outcome in 2011 is likely to be more subdued. hiring has been tepid and has yet to reach pre-crisis levels (Figure 2).6 However. The uptick in industrial employment together with increased hiring in services has helped to reduce open unemployment rates across the region (Figure 3).I. exchange rates. combined with efforts to rebalance the pattern of investment and growth. Developments in High-income countries -3. In contrast.5 percent in the decade before the 1997–98 Asian financial crisis. We project growth in China to slow to about 9 percent this year from 10.
2007=100 figure 3. Real wages have risen in most countries other than Indonesia index. Sources: CEIC and World Bank. The pace of poverty reduction almost doubled from 2008–09. because of strong demand for labor and robust growth in productivity (Figure 4). RECOVERY FIRMLY ON TRACK figure 2.8 Philippines 37. Both Indonesia and the Philippines WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2011. Real wages in industry have followed the same trend as real growth.4 Pacific 3. Progress in reducing poverty is complicated by higher food and fuel prices The pace of poverty reduction in East Asia picked up in 2010 due to better-than-expected growth in many countries.8 Thailand 5. but about 500 million people in East Asia still live on less than $2/day population in millions 140 130 120 110 100 90 85 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Malaysia 1. 1 .3 Vietnam 33. Industrial employment in Indonesia and Philippines reached pre-crisis levels index. VOL.2 China Indonesia Thailand Source: World Bank staff calculations.8 Middle Income Countries IDAs 13. Sources: CEIC and World Bank. The marked progress reducing poverty notwithstanding.8 I. the region remains home to about 500 million poor people (those living on less than $2 per day).8 China 300. reducing the poverty headcount to 27 percent of the region’s population from 30 percent in 2009. with the majority living in China and East Asia’s other large middle-income countries The effects of higher global food and fuel prices continue to be significantly modified by domestic policies and these have a bearing on both the prevalence and severity of poverty. Nearly 51 million people were lifted out of poverty in developing East Asia and Pacific during 2010. The pace of increase has been the fastest in China. Unemployment has declined across the middle-income countries in percent of the labor force 115 110 105 100 95 90 85 2010 9 8 7 6 5 4 3 2 1 Indonesia Malaysia Philippines Thailand 0 Indonesia Malaysia Philippines Thailand 2009 2008 Q1–3 2009 Q1–3 2010 Sources: CEIC and World Bank. Poverty reduction has been impressive. Q1-2007=100 figure 5. figure 4.9 Indonesia 110. although it was still slower than during 2000–07.
The growth in Chinese imports benefitted the SECURING THE PRESENT. they are not necessarily targeted to the poorest. and the crisis did little to halt that trend (Figure 6). in both countries. trough = Jan-99 Global economic crisis. East Asia’s share of global trade today is twice as large as two decades ago. China’s imports rose sharply during and after the global economic crisis (Figure 8). as percent of world imports t-11 t-8 t-5 t-2 Months t+1 t+4 t+7 t+10 Asian financial crisis. Fuel subsidy programs are often characterized by similar if not higher leakage rates. RECOVERY FIRMLY ON TRACK 9 strictly control imports of rice and support domestic prices in order to promote domestic production. China‘s strong growth in output and import demand during the recovery provided crucial support to regional and global trade.com” implosion of 2000–01. respectively figure 7. As a result. notably in China. But the subsequent recovery was equally strong. SHAPING THE FUTURE . While import volumes in the G-3 recovered only modestly and remain well-below pre-crisis levels. In the Philippines. China accounts for 9 percent of world imports. it is estimated that only a third of the total subsidized rice goes to the poorest quintile and as much as 41 percent of that leaks to non-poor households. In Indonesia. Note: “t” denotes the crisis low. as percent of world exports Source: Direction of Trade Statistics. And although many smallholders in Lao PDR and Cambodia produce rice in self-sufficient quantities. up from 7 percent in 2007 and 3 percent in 1999.I. t+1 is one month after the low The rebound in trade from the crisis lows was dramatic. trough = Dec-01 Source: World Bank. trough = Jan-09 IT bubble. Exports are stabilizing at a faster pace than before the crisis The rapid expansion of East Asia as the world’s export powerhouse was complemented by surging final demand within the region. figure 6. The trade contraction in the region during the global economic crisis was deeper and more protracted than during the 1997–98 Asian financial crisis or the “dot. with exports picking up sharply after three quarters from the cyclical trough (Figure 7). but have climbed strongly subsequently in percent change from crisis low 25 20 15 10 5 0 35 30 25 20 15 10 5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2009 0 East Asia exports. Exports and imports from East Asia have surged as a share of global trade in percent of global exports or imports. Though countries such as Philippines and Indonesia have cash or food subsidy programs for the needy. Trade has also benefitted from stronger final demand for East Asian products. for example. East Asia imports. and buy rice later in the season when prices are higher. domestic wholesale prices were more than 50 percent higher than global prices. rice prices are significantly higher than international prices and result in subsidizing net sellers at the expense of net buyers who are often the poorest. they frequently sell at harvest time (when prices are lower) because of lack of storage facilities or pressing needs. IMF. Although rice prices remained stable in the Philippines. Export volumes shrank during the global crisis. the gap between domestic and international prices increased further in 2010.
Exports from the rest of developing East Asia to China grew faster than their exports to the rest of the world. China Taiwan. 0 2007 20 40 60 80 100 Source: World Bank.S. China’s imports for processing trade grew much more slowly than “ordinary trade” imports (Figure 11). Starting in mid2010. RECOVERY FIRMLY ON TRACK region significantly. The impact of this buoyancy in Chinese imports on the region’s economies was not uniform. China’s imports from East Asia are larger than its exports to the United States in billions of U. Specifically. Imports related to processing trade networks are lagging index of three-month moving average U. 1 .S.Processing with imported materials Source: CEIC. Compared to 2007. In the Philippines (where electrical and electronic exports account for two-thirds of total WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2011.Ordinary trade Imports . dollars figure 11. China’s imports from emerging East Asia grew much faster than China’s own exports to the high-income economies (Figure 10). But the story is not restricted to China. VOL. China’s imports surged during the recovery… index. figure 10. figure 8. Jan 2009 = 100 figure 9. And. dollar values.10 I. the region’s commodity exporters benefitted from increased demand for industrial raw materials and from higher international prices. Source: CEIC. China Lao PDR Korea Malaysia Thailand Singapore Indonesia Philippines Vietnam Cambodia May-09 Sep-09 Jan-10 European Union China United States East Asia excluding China May-10 Japan Sep-10 2010 Source: CEIC. imports by foreign-invested enterprises in China—the workhorses of the global networks—also rose more slowly than imports by state and other local enterprises. …providing a strong impetus to regional trade exports to China in percent of total country exports 250 200 150 100 50 0 Jan-09 Mongolia Hong Kong SAR. Jan-09 = 100 45 40 35 30 25 20 15 10 5 0 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 215 195 175 155 135 115 95 75 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Imports from Emerging East Asia Exports to the United States Imports . Final demand appears to have given a stronger lift to Chinese imports from the region than demand via international production networks. exports to China now comprise a larger share of total exports in every economy in developing East Asia and the NIEs (Figure 9). Import demand in the region excluding China also grew faster during the crisis than import demand in the G-3.
7 billion of the former and almost a $1 billion of the latter in January 2011 alone (Figure 14). Inflows were highly concentrated in China. East Asia’s bond markets have responded with a bond return index that is now three times higher than its level at the beginning of 2000 and a regional return index that is one and half times the global index (Figure 17). figure 12. 50 percent of the portfolio debt and 74 percent of the short-term debt flows to all developing countries. East Asia’s experience with capital flows during and after the global economic crisis contrasts with the period after the 1997–98 Asian financial crisis when the crash was more severe (although concentrated in three countries: Indonesia. foreign investors purchased $2. Malaysia and Thailand (Figure 12 and Figure 13). the regional stock market index has outperformed the global index by 1. Net Capital Flows China Indonesia Malaysia Philippines Thailand Source: Haver Analytics. In the Philippines. Net Other Inv.I. The pattern of larger and more volatile flows is also evident in Korea where purchases of government bonds by non-residents fell from $53 billion in April 2008 to $28 billion in January 2009 before rebounding to $65 billion at present Portfolio inflows have buoyed the region’s asset markets. volatility increases After shrinking sharply in 2008. Globally. Both the largest monthly purchase and sale have more than doubled from a year earlier in 2010 (Figure 15). net capital inflows into developing East Asia surged to a record in 2010. RECOVERY FIRMLY ON TRACK 11 exports and 90 percent of the country’s shipments to China) the contraction in the global electronics trade has meant that it did not benefit as much from the strength of Chinese imports as either Malaysia or Thailand. Note: Net capital flows is the difference between foreign investment in a country and resident investment abroad. In Indonesia. As corporate fundamentals improved and as corporate and government issuers have taken advantage of the historically low yields to ramp up bond debt issuance. Portfolio flows into the region’s equities and bonds have been particularly volatile recently.S.2 billion worth of equities and $9. Capital flows surge. Stock market capitalization for emerging East Asia also doubled to 110 percent of GDP in 2010 from 2003.6 billion of government bonds in 2010. Source: Haver Analytics.5 times and is currently at a level twice as high as its lowest point during the global financial crisis (Figure 16). notably China in billions of U. dollars figure 13. SHAPING THE FUTURE . dollars 250 200 150 100 50 0 -50 -100 -150 1995 1998 2001 2004 2007 2010 250 200 150 100 50 0 -50 -100 1995 1998 2001 2004 2007 2010 Net FDI Net Portfolio Inv. SECURING THE PRESENT. As a result of large non-resident purchases of East Asian equities through most of 2010. the range in net monthly foreign purchases of securities widened considerably. Note: Net capital flows is the difference between foreign investment in a country and resident investment abroad. but sold $0. Indonesia. …but are highly concentrated in a few countries. Net capital flows into developing East Asia surged to a record… in billions of U. but increased recent volatility is a useful reminder how quickly such inflows can reverse. nine countries received 95 percent of the portfolio equity.S. Thailand and Korea) and the revival slower.
excluding China All countries (RHS) Sources: UNCTAD and Haver Analytics. RECOVERY FIRMLY ON TRACK figure 14. Middle-income countries. Weekly buying of Indonesian stocks and government bonds by nonresidents has become more volatile… in millions of U. Inward FDI has recovered strongly in East Asia… in billions of U. Source: JPMorgan.000 1. January 2000 = 100 200 180 160 140 120 100 80 60 40 20 0 Jan-00 Nov-01 Sep-03 Jul-05 May-07 Mar-09 Jan-11 350 300 250 200 150 100 50 0 Jan-00 Nov-01 Sep-03 Jul-05 May-07 Mar-09 Jan-11 MSCI World MSCI Far East excluding Japan JPM GBI . dollars figure 19.Global JPM EMBIG . January 2000 = 100 figure 17. figure 18. Sources: Indonesia Stock Exchange and Indonesia Ministry of Finance. dollars figure 15.500 1.500 1. dollars 160 140 120 100 80 60 40 20 0 1995 1998 2001 2004 2007 2010 2.S. …and so have inflows of bank credit foreign claims of BIS-reporting banks.S. 1 . via Datastream.Asia Source: MSCI/Barra.000 500 0 -500 -1.500 2.000 500 0 40 20 0 -20 -40 -60 -80 1995 1998 2001 2004 2007 2. …and regional bonds have performed better than their global benchmark bond total return index. via Datastream.S. figure 16.000 -1. exchange rate-adjusted annual changes.500 -2.000 -1. Regional shares have surged ahead of the global market… stock price index.12 I. WORLD BANK EAST ASIA AND PACIFIC ECONOMIC UPDATE 2011. excluding China All countries (RHS) China Low-income countries Source: BIS. VOL.500 Jul-2010 30 25 20 15 10 5 0 -5 -10 -15 -20 Jan-08 Foreign net purchases of Indonesian stocks. bonds. …and so have monthly nonresident purchases of Philippine equities in billions of Philippine pesos 1. in billions of U. USD million Aug Sep Oct Nov Dec Jan-2011 Feb Aug-08 Mar-09 Oct-09 May-10 Dec-10 Source: Philippine Stock Exchange.000 -2.000 1. USD million Changes in foreign holdings of Indonesian govt.000 500 0 -500 -1.500 2010 (Jun) China Low-income countries Middle-income countries.
In the region’s other middle-income countries. Inflows of foreign direct investment and bank flows have also recovered. As a result of sustained outward flows. with FDI outflows of $44 billion in 2009 and $20 billion in the first half of 2010 (compared with $75 billion by Japan. which pulled back from the region at the onset of the global financial crisis and are still retrenching globally. Foreign banks. have steadily rebuilt their assets in the region. dollars figure 21. in particular to China and the middle-income countries (Figure 19). net capital inflows into emerging East Asia were less than half of gross inflows at about 2 percent of regional GDP in 2009. In four years. which ranks third globally). capital account deficits (including errors and omissions flows) in 2005-09 turned into a surplus in 2010 (Figure 21). including errors and omissions Sources: IMF and Haver Analytics. SECURING THE PRESENT. Malaysia and Thailand each invested $4 billion a year abroad. a degree of exceptional volatility driven in large part by capital inflows. Malaysia.I.S. The equity market has almost tripled since March 2009 though it is still below the peak reached in late 2007. SHAPING THE FUTURE . underscoring the high volatility of equity prices and capital inflows. Sources: IMF and Haver Analytics. FDI inflows to East Asia held up well during the crisis. …and in the other middle-income countries of the region in billions of U. including errors and omissions Current account Capital and financial account. RECOVERY FIRMLY ON TRACK 13 Recent equity market highs for the region on average are still below pre-crisis peaks. declining in 2009 only to 2007 levels before recovering in 2010 (Figure 18). dollars 600 500 400 300 200 100 0 -100 1995 1998 2001 2004 2007 2010 100 80 60 40 20 0 -20 -40 1995 1998 2001 2004 2007 2010 Current account Capital and financial account. Capital inflows are an increasingly important source of exchange rate pressure in China… in billions of U. Net capital inflows are still dwarfed by current account surpluses across East Asia. China. Outward investment by East Asian residents has also strengthened substantially. The current account surplus accounts for the bulk of foreign currency liquidity into China (Figure 20).S. figure 20. Cross-border credits from foreign banks have also returned. and Thailand have become significant sources of FDI in foreign markets. the regional equity index fell 72 percent before rebounding by 220 percent. China ranked fifth among the world’s top FDI investors in 2008.
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