China's Large and Rising Net Foreign Asset Position

China's emergence as a major player in world trade is well known, but its growing role in global finance might have been underappreciated. China is the second largest creditor in the world today, with a net creditor position of 30 percent of GDP in 2008. We test the importance of the growth differential, demographics, government debt, financial depth and the exchange rate in shaping China's net foreign asset position. Our empirical results highlight the sharp fall in the young-age dependence as one key driver behind China's puzzlingly large net lender position and also confirm the neoclassical prediction that faster growth attracts more capital inflows. Looking ahead, our findings suggest that China will unlikely turn into a meaningful net debtor nation over the next two decades.