Recent growth in Japan’s net capital outflows has resulted primarily from a
falling domestic investment rate rather than a higher saving rate. Between
1995 and 2004, Japan’s domestic saving rate fell from 30 percent to 28percent
of GDP. During this same period, Japan’s domestic investment rate fell from
28 percent to 24 percent of GDP. This widening gap between saving and
investment—Japan’s excess supply of saving—led to higher net capital
outflows and a corresponding rise in its current account surplus. Japan’s
current account surplus rose from 2.1 percent of GDP in 1995 to 2.5 percent
of GDP in 2000 to 3.7 percent of GDP in 2004.
With $103 billion in net capital outflows, Germany was the world’s second
largest net capital exporter in 2004. Between 1990 and 2000, Germany
received total net foreign capital inflows of $175 billion. Between 2001 and
2004, in contrast, Germany experienced net capital outflows of more than
$200 billion. Germany’s rising net capital outflows have been mirrored by its
rising current account surpluses. Between 2001 and 2004, Germany’s current
account surplus rose from 0.2 percent to 3.8 percent of GDP.
Like Japan, Germany’s rising saving surpluses and net capital outflows have
stemmed from a falling rate of domestic investment rather than a rising rate
of domestic saving. At 21 percent of GDP, Germany’s saving rate has been
broadly stable over most of the past decade (though it did rise from 2003 to
With $69 billion in net outflows, China was the world’s third largest net
capital exporter in 2004. China’s role as a net capital exporter may seem
surprising given the large foreign investment inflows it experiences. While
China does receive substantial foreign investment, it experiences even larger
capital outflows due to foreign reserve accumulation by its central bank that
results from its foreign exchange regime. As China’s reserves have risen in
recent years, its capital account balance has moved toward larger deficits and
its current account toward larger surpluses. In 2004, China’s current account
surplus was equivalent to 4 percent of GDP (note that in December 2005,
China increased the estimate of its 2004 GDP, which is likely to reduce the
size of this current account surplus relative to GDP). Current projections
indicate China’s current account surplus is likely to have exceeded 6 percent
of GDP in 2005.
China’s reserves have increased due to its rising current account surpluses,
net private capital inflows, and tightly managed pegged exchange rate system.
China first adopted its currency peg in 1994, linking its currency (the
renminbi) to the U.S. dollar at a rate of 8.3 renminbi-per-dollar. To maintain
this peg, China’s central bank has purchased large amounts of foreign
currency assets in recent years to prevent its currency from appreciating. Even
after modifying its exchange rate peg in July of 2005, however, (linking the
renminbi to a basket of currencies rather than the U.S. dollar alone) China’s
foreign reserves have continued to rise. By the end of 2005, China’s foreign
reserve level exceeded $800 billion and may rise to $900-$1000 billion by the
end of 2006. Between 2000 and 2005, China’s foreign reserves increased by
more than $600 billion.
In terms of its saving and investment balance, China’s net capital outflows
have resulted primarily from a rising saving rate. While China’s rate of
domestic investment has also been rising (projected 46 percent of GDP in
2005 prior to its GDP revision), its saving rate has risen even more rapidly.
At roughly 52 percent of GDP, China’s saving rate is the highest in the world.