The report blamed the shrinking current account on China’s ageing population, and plateauing market share in goods exports, among other factors.
“We expect China to shift to an annual current account deficit from 2019 onwards due to a slipping national saving rate amid an aging population,” said the bank.
A deficit means that a country is spending more than it is getting in income. And if the country’s national savings rate is declining, then it would have to attract more foreign capital to fund its needs.
Besides a shrinking share in exports, there has also been rising domestic demand for imported goods and outbound tourism, which has exacerbated the narrowing surplus, according to the report.
In addition to that, China is experiencing a slowdown. Official government figures said the country’s economy slowed last year to 6.6 percent — the lowest expansion rate in 28 years.
With the gloomy outlook, Morgan Stanley estimated that China will require at least $210 billion of net foreign capital inflows per year from 2019 to 2030 in order to finance the shortfall. That funding gap would initially be between $50 billion and $90 billion a year from 2019 to 2020, but would widen gradually to $200 billion in 2020, the bank estimated.
“This means that China will need to improve its business environment further and attract (foreign direct investment) inflows, accelerate opening up of the domestic equity and bond markets, and promote RMB’s status as an international reserve currency,” it said, referring to another name for the Chinese yuan.