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.