China And The US External Rebalancing Of Risk From The Perspective Of The Net Foreign Assets Of View

China’s current account surplus and the current account deficit of the US alwaysconcerned economists for years. This triggered concerns that the following rebalanceprocess of internal demand or exchange rate might be brutal that devastate the long-termgrowth perspective around the world. But there are two questions should be answeredbefore any conclusion is made: Is the condition as serious as what the Balance of Paymentpresents? And even if imbalances exist, is the pressure of rebalance strong enough to shockthe global economy? Based on existing researches, we argue that a country is balanced atwhere its net foreign asset position equals to it under equilibrium, which reflects thepayment in the future. This payment is decided by long-term factors like the demographicstructure, public debt and income. Change in these factors will lead to current accountdeficit or surplus under equilibrium. Moreover, the net foreign asset offers a way to helprebalance, as the US enjoys positive yield privilege while China suffers a negative one.According to this definition of equilibrium, our empirical research showed softer pressureof rebalance on global economy than implication of BOP. Specifically, the US can easilyhandle the pressure of rebalance by slightly depreciating the dollar by2%, from relativelypessimistic perspectives, whilst fast growth in China insures its external stability undercurrent BOP structure.