Department of Economics, UCSC

In this paper we evaluate the current account patterns of China and Germany. Wepoint out that China's current account surplus as a share of global GDP in recent yearsresembles that of Germany’s. Yet, an important difference is that the Euro block’scurrent account inclusive of Germany has overall been balanced, whereas emergingAsia's current account inclusive of China has mostly been characterized by sizablesurpluses. We further find that both China and Germany's current account surplusesseem to be accounted for by common factors. However we have reasons to doubt thelong run viability of these current account trends in future decades. Demographictransitions in China and Germany are projected to reduce their surpluses, and thiseffect is stronger for Germany. We also discuss plausible reasons to doubt the extentto which the Euro block will move towards significant surplus in the coming years.