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, Changｃｈun, 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)
200
100
0
-100
US
EU
JP
-200
-300
-400
-500
-600
93
94
95
96
97
98
99
0
Data:IMF,World Economic outlook, April 2004
1
2
3
External Flow of Funds in US
(US$ billions)
1000
800
600
Inflows
Outfliws
400
200
0
90 91 92 93 94 95 96 97 98 99
0
1
2
Data: FRB, Flow of Funds Accounts of the United States. 2002.
External Financing of
Emerging Market (US$ billions)
1994
Current account balance-70.2
External financing, net 181.1
Private flows, net 154.7
Official flows, net 26.4
Resident lending net -65.8
FER -45.4
1995
-84.9
262.6
217.9
44.7
-83.2
-94.5
1996
-95.5
339.3
335
4.3
-158.1
-85.7
1997
-80.4
301.8
265.9
35.9
-177.9
-43.5
1998
-10.1
189.1
136.1
53
-137.4
-41.6
1999
29.3
165.8
153.2
12.6
-140.2
-54.9
2000
48
183.6
187.6
-4
-161.2
-70.3
Data: IIF, Capital Flows to Emerging Markets Economies, 2003
2001
29.2
140
126
14
-84.1
-85.2
2002
22.1
139.5
122.9
16.6
-41.7
-119.8
A Doubtful circle in East
Asia

Excessive Fund Flows

A Doubtful Circle
Balance of Savings-Investment
in East Asia (Percent of GDP)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Hong Kong
Korea, Rep. of
Singapore
Taipei
Indonesia
Malaysia
Philippines
Thailand
China
5.3
-1.4
9.6
2.1
2.9
1.4
-3.8
-4.8
1.0
7.0
0.3
8.6
1.8
3.0
-0.1
-8.4
-4.3
-2.0
1.2
0.4
16.1
1.9
-0.3
-1.6
-6.5
-4.3
1.3
-4.3
-1.8
15.6
1.7
-1.3
-3.9
-8.0
-8.0
1.7
-1.4 -2.9 1.3 5.6 4.8 5.1 9.7
9
-3.9 -0.5 13.2 6.0 4.1 3.2 3.1
2
12.2 11.9 19.5 16.4 15.6 19.4 23.6 22.1
3.4 2.2 1.1 2.7 2.8 6.5 8.6 7.6
-0.6 -0.3 9.7 8.1 9.3 7.4 6.8 4.9
1.4 0.9 22.0 25.0 20.0 18.4 17.4 16.8
-5.1 -5.1 2.3 8.7 7.4 0.4 1.7
2
-4.2 -0.1 15.7 12.3 8.3 6.1 6.7 4.7
1.5 3.3 2.1 2.0 0.9 0.0 0.2 0.0
Date: “Asian Development outlook 2004”
Changes in The Current-Account
in East Asia (Percent of GDP)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Hong Kong
Korea, Rep. of
Singapore
Taipei
Indonesia
Malaysia
Philippines
Thailand
China
-1.3
11.4
4.0
-5.7
-2.0
-3.7
-1.6
1.3
0.3
7.6
3.2
-5.1
-1.2
-4.7
-5.5
-1.9
-1.0 -1.7 -4.4
17.2 17.3 14.1
2.7 2.1 3.9
-5.4 -12.1 -8.1
-1.6 -3.2 -3.4
-6.2 -9.7 -4.4
-4.6 -4.4 -4.6
1.3 0.2 0.9
-3.1
-1.7
19.2
2.4
-2.1
-2.4
-5.9
-5.1
4.1
1.5 6.4 4.3 6.1 8.5 11
11.6 5.5 2.4 1.7 1.0 2.0
22.7 18.6 14.3 18.7 21.4 30.9
1.3 2.8 2.9 6.4 9.1 10.0
4.3 4.1 5.3 4.8 4.5 3.7
13.2 15.9 9.4 8.3 7.6 13.0
2.4 9.5 13.2 1.8 5.6 4.2
12.8 10.2 7.6 5.4 5.5 5.6
3.3 2.1 1.9 1.5 2.8 2.2
Date: “Asian Development outlook 2004”
The Financial Form of The Current
Deficit of Developing Asia (US$ billions)
93
94
Balance on current account
-33
-19
Net external financing
75.3
95
96
97
98
8.4
99
0
1
2
47.9 46.7
44.2
34.5
51.2
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
Official creditors
26.1
10.9
28.3
11.2
41.2
7.4
41.1
-1.3
28
14.3
-4.4 -2.2
21.2 22.1
8.6
12.2
11.7
6.2
19
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
1.7
1.2
0.6
0.7
0.5
6.6
11.3
Exceptional Financing
-42.1 -39.2
Data: IMF, World Economic outlook, May 2003
14.6
7.1
6.1
The Overseas Fund Flows in China

A Doubtful Circle in China

Net Fund Outflows to Overseas
Overseas Fund Flows in China
(100 million RMB)
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
EO
(D)
-456
-565
-832
-1487 -1294 -1405 -1372
-1361
-873 -3917 -6250
-1056 -450 550
S or D
(E)
-353
658
-652
-137
-1298
-1696 -1436 -2928
-612
-2471 -2359
Data: The People’s Bank of China Quarterly Statistical Bulletin, 1998-2003
The Flow of Funds in China
(The average of 1992-2002, 100 million RMB)
Domestic Economy
Current surplus 1213
G D P 69,168
Investment
37,027
25,065
Savings
26,282
Financial M arkets
O verseas Economy
1207
5,377
4,170
D omestic uses
37,027
D omestic sources
38,234
O verseas uses
5,377
O verseas sources
4,170
38,234
Problems and Future Prospects


The Difference in “A Doubtful Circle ”
in East Asia
Create the Environment for Stabilized
Fund Flows
Thank you！
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presentation - LBA-ECO