The Composition of The Global Flow of Funds in East

Asia

Nan Zhang

The 11th International Conference of Northeast Asian Area

August 19-20, 2004, Chang ｃｈ un, China

Contents

The Outline of Analysis

Pattern of International Fund Flows in 1990s

A Doubtful Circle in East Asia

Problems and Future Prospects

The Outline of Analysis The Balance of Savings-Investment Financial Surplus or Deficit Current Account

S - I = △ Ａ - △ Ｌ ＝ EX - IM

The Balance of Overseas Income and Expenditures Current account surplus= (fund outflow - fund inflow) + foreign exchange reserves

EX - IM = （ FO - FI ） + FER

　

The Balance of Financial Markets

Domestic fund outflow+overseas fund outflow+ foreign exchange reserves

=Domestic fund inflow+ overseas fund inflow

DFO + OFO + FER ＝ DFI + OFI The equation above is changed as follows OFO - OFI + FER ＝ DFI - DFO

Balance of Overseas Fund Supply (Net fund supply to overseas)

NOFO + FER (Capital account deficit)

= NDFI (Increase in domestic financial

assets)

Patterns of International Fund Flows in the 1990s US Investment Boom: US Investment to Emerging Market

A Doubtful circle: The Returns of Fund Flow to US

From The Developing Country

The Current Account of The Advanced Country (US$

billions)

Data:IMF,World Economic outlook, April 2004

- 600

- 500

- 400

- 300

- 200

- 100

0

100

200

93 94 95 96 97 98 99 0 1 2 3

USEUJ P

External Flow of Funds in US (US$ billions)

Data: FRB, Flow of Funds Accounts of the United States. 2002.

0

200

400

600

800

1000

90 91 92 93 94 95 96 97 98 99 0 1 2

InflowsOutfliws

External Financing of Emerging Market (US$ billions)

1994 1995 1996 1997 1998 1999 2000 2001 2002Current account balance- 70.2 - 84.9 - 95.5 - 80.4 - 10.1 29.3 48 29.2 22.1External financing, net 181.1 262.6 339.3 301.8 189.1 165.8 183.6 140 139.5 Private flows, net 154.7 217.9 335 265.9 136.1 153.2 187.6 126 122.9 Official flows, net 26.4 44.7 4.3 35.9 53 12.6 - 4 14 16.6Resident lending net - 65.8 - 83.2 - 158.1 - 177.9 - 137.4 - 140.2 - 161.2 - 84.1 - 41.7FER - 45.4 - 94.5 - 85.7 - 43.5 - 41.6 - 54.9 - 70.3 - 85.2 - 119.8

Data: IIF, Capital Flows to Emerging Markets Economies, 2003

A Doubtful circle in East Asia Excessive Fund Flows

A Doubtful Circle

Balance of Savings-Investment in East Asia (Percent of GDP)

Date: “Asian Development outlook 2004”

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Hong Kong 5.3 7.0 1.2 -4.3 -1.4 -2.9 1.3 5.6 4.8 5.1 9.7 9 Korea, Rep. of -1.4 0.3 0.4 -1.8 -3.9 -0.5 13.2 6.0 4.1 3.2 3.1 2 Singapore 9.6 8.6 16.1 15.6 12.2 11.9 19.5 16.4 15.6 19.4 23.6 22.1 Taipei 2.1 1.8 1.9 1.7 3.4 2.2 1.1 2.7 2.8 6.5 8.6 7.6 Indonesia 2.9 3.0 -0.3 -1.3 -0.6 -0.3 9.7 8.1 9.3 7.4 6.8 4.9 Malaysia 1.4 -0.1 -1.6 -3.9 1.4 0.9 22.0 25.0 20.0 18.4 17.4 16.8 Philippines -3.8 -8.4 -6.5 -8.0 -5.1 -5.1 2.3 8.7 7.4 0.4 1.7 2 Thailand -4.8 -4.3 -4.3 -8.0 -4.2 -0.1 15.7 12.3 8.3 6.1 6.7 4.7 China 1.0 -2.0 1.3 1.7 1.5 3.3 2.1 2.0 0.9 0.0 0.2 0.0

Changes in The Current-Account in East Asia (Percent of GDP)

Date: “Asian Development outlook 2004”

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Hong Kong -3.1 1.5 6.4 4.3 6.1 8.5 11 Korea, Rep. of -1.3 0.3 -1.0 -1.7 -4.4 -1.7 11.6 5.5 2.4 1.7 1.0 2.0 Singapore 11.4 7.6 17.2 17.3 14.1 19.2 22.7 18.6 14.3 18.7 21.4 30.9 Taipei 4.0 3.2 2.7 2.1 3.9 2.4 1.3 2.8 2.9 6.4 9.1 10.0 Indonesia -5.7 -5.1 -5.4 -12.1 -8.1 -2.1 4.3 4.1 5.3 4.8 4.5 3.7 Malaysia -2.0 -1.2 -1.6 -3.2 -3.4 -2.4 13.2 15.9 9.4 8.3 7.6 13.0 Philippines -3.7 -4.7 -6.2 -9.7 -4.4 -5.9 2.4 9.5 13.2 1.8 5.6 4.2 Thailand -1.6 -5.5 -4.6 -4.4 -4.6 -5.1 12.8 10.2 7.6 5.4 5.5 5.6 China 1.3 -1.9 1.3 0.2 0.9 4.1 3.3 2.1 1.9 1.5 2.8 2.2

The Financial Form of The Current Deficit of Developing Asia (US$ billions)

93 94 95 96 97 98 99 0 1 2

Balance on current account -33 -19 -42.1 -39.2 8.4 47.9 46.7 44.2 34.5 51.2

Net external financing 75.3 76.2 101.9 113.2 91.3 50.2 51 70.5 61.9 76.1

Non-debt -creating inflows 49.1 48 60.7 72.1 63.3 54.6 53.3 61.9 50.2 57.2

Net external borrowing 26.1 28.3 41.2 41.1 28 -4.4 -2.2 8.6 11.7 19

Official creditors 10.9 11.2 7.4 -1.3 14.3 21.2 22.1 12.2 6.2 5.2

Banks 10.6 10.8 29.6 27.9 13.6 -12.5 -11.8 -22.3 -6.2 -8

Other private creditors 4.6 6.3 4.2 14.5 10.4 -13.1 -12.6 18.7 11.8 21.8

Exceptional Financing 1.7 1.2 0.6 0.7 0.5 14.6 7.1 6.1 6.6 11.3 Data: IMF, World Economic outlook, May 2003

The Overseas Fund Flows in China

A Doubtful Circle in China

Net Fund Outflows to Overseas

Overseas Fund Flows in China (100 million RMB)

Data: The People’s Bank of China Quarterly Statistical Bulletin, 1998-2003

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Inflows (A) 1667 2929 5326 5654 5901 5005 2976 3808 4877 3488 4236

Outflows (B) 1681 1604 2514 2427 2588 3109 3431 3041 4643 557 1464

Net inflows (A-B) -14 1325 2811 3228 3313 1896 -454 767 234 2931 2772

FER (C) 117 -102 -2631 -1877 -2632 -2961 -532 -704 -873 -3917 -6250

EO (D) -456 -565 -832 -1487 -1294 -1405 -1372 -1361 -1056 -450 550

S or D (E) -353 658 -652 -137 -612 -2471 -2359 -1298 -1696 -1436 -2928

The Flow of Funds in China (The average of 1992-2002,

100 million RMB) Domestic Economy

Current surplus 1213

38,234

37,027

Financial Markets

Overseas Economy

5,377

4,170

GDP 69,168

Investment Savings

25,065 26,282

Domestic uses 37,027

Overseas uses 5,377

Domestic sources 38,234 Overseas sources 4,170

1207

Problems and Future Prospects

The Difference in “A Doubtful Circle ” in East Asia

Create the Environment for Stabilized Fund Flows

Thank you ！

To Comment or obtain a copy of full paper:

zhang@shudo-u.ac.jp