Consumption Tilting and the Current Account: Evidence from China

This paper uses the present-value model of current account to analyze the reason for China's current account imbalances for the 1982-2010 periods. The results show that the consumption tilting parameter of China's residents in the same period is 1.127. This means that the Chinese residents' consumption is less than the persistent cash flow; residents will transfer their consumption to the future, making the current account surplus. So the key measures of China's governance current account imbalances are not to increase income but to reduce rigid expectations on expenditure.