Improving the Quality of Chinas NIIP: Evidence from Structural Analysis, Valuation Effects, and International Comparison

Chinas 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 effectssuch as exchange rate and asset price fluctuationsamplify the volatility of Chinas 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 Chinas external position can evolve from quantity-driven accumulation to strategic and return-oriented global capital allocation.