Improving the Quality of China’s NIIP: Evidence from Structural Analysis, Valuation Effects, and International Comparison
Year: 2025
Type: article
Abstract: China’s status as a major net creditor contrast with its persistent negative net investment income, raising concerns about the structure and performance of its Net International Investment Position (NIIP). This paradox stems from an asset composition concentrated in low-yield official reserves and liabilities dominated by foreign direct investment (FDI). Through analysis of NIIP trends, comparative data from Japan and Norway, and relevant literature, the study identifies how structural imbalances and valuation effects—such as exchange rate and asset price fluctuations—amplify the volatility of China’s external balance sheet. Findings indicate that limited portfolio diversification, modest private sector participation, and institutional constraints, including capital controls, reduce investment returns while increasing vulnerability to external shocks. To address these challenges, policy recommendations include reducing reliance on reserves, promoting high-yield portfolio investments, and supporting institutional investors through capital account liberalization and regulatory reforms. Improving the external asset structure is essential not only for enhancing income performance but also for safeguarding macro-financial stability. These insights contribute to a broader understanding of how China’s external position can evolve from quantity-driven accumulation to strategic and return-oriented global capital allocation.
Author: Yike Yuan
Institution: University of Nottingham Ningbo China
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4412183786