China to Become World's Top Net Creditor Nation by Year-End [Economic Policy Zoom-In]

China is projected to become the world's largest net creditor nation by the end of this year. Japan held the top spot for net foreign financial assets for about 30 years until 2023, and Germany took the lead in 2024. While there are several variables, China is expected to take the top position by the end of this year.

As of the end of the second quarter this year, Germany still holds the top spot, but it is ahead of China by only 80 billion dollars. In the first half of this year, China recorded a current account surplus of 294.1 billion dollars, while Germany posted 120.1 billion dollars, resulting in a difference of about 170 billion dollars. If similar trends continue in the second half, it is almost certain that China will become the world's top net foreign asset holder.

Japan, after losing its number one position to Germany last year for the first time in 34 years, has already dropped to third place as of the end of the second quarter this year, behind China.

Hong Kong and Norway have consistently held the fourth and fifth spots for several years. Canada, ranked sixth, briefly lost its position to Singapore in 2022 but has since regained and maintained it.

South Korea rose from 11th place in 2021 to 7th in 2022, dropped to 10th in 2023, and has maintained 8th place from the beginning of 2024 through the second quarter. Taiwan is not included in the International Monetary Fund (IMF) statistics, but it is at a global level of around 6th place.

What Is Net Foreign Asset?

Net foreign asset is referred to in English as Net Foreign Asset (NFA) or International Investment Position (IIP). It is calculated by subtracting the foreign investment in a country (external financial liabilities) from the assets that residents of that country hold abroad (external financial assets). A positive value indicates a net creditor nation, while a negative value indicates a net debtor nation. South Korea had long been a net debtor nation but became a net creditor nation starting from the third quarter of 2014.

External financial assets and liabilities include corporate overseas direct investment, securities and derivatives investment by individuals or institutions, other investments such as loans, cash deposits, and trade credit, as well as reserve assets, which are the total foreign exchange reserves.

The current account has the greatest impact on net foreign assets. Typically, a current account surplus leads to increased overseas investment and foreign exchange reserves, resulting in higher net foreign assets. The yield on assets invested abroad can also increase or decrease net foreign assets depending on whether returns rise or fall.

Exchange rates also play a role. Since net foreign assets are expressed and compared in US dollars, exchange rates affect both assets and liabilities. For example, in the case of liabilities, if the value of the Korean won falls against the dollar (i.e., the won-dollar exchange rate rises), the value of won-denominated government bonds held by foreigners decreases in dollar terms, reducing external financial liabilities and thus positively impacting net foreign assets. Conversely, for assets, if South Korea invests in yen-denominated assets and the value of the yen rises against the dollar (i.e., the yen-dollar exchange rate falls), the asset value increases in dollar terms, boosting external financial assets and positively impacting net foreign assets.

Net foreign assets are an indicator of a country's external soundness and play a role in curbing sharp exchange rate increases or capital outflows during shocks such as a foreign exchange crisis.

Export-Oriented Surplus Nations Dominate the Rankings

Most of the countries at the top of the net foreign asset rankings have export-oriented economies and have consistently recorded large current account surpluses.

Japan and Germany already established themselves as central players in the global economy during the 1970s and 1980s with strong manufacturing competitiveness, posting significant current account surpluses. In particular, Japan had been the world's largest net creditor nation for over 30 years since the 1990s. After the Plaza Accord in 1985, the yen appreciated to about twice its value against the dollar, prompting Japan to purchase large amounts of relatively cheap overseas assets. At the time, there was even a saying that "selling Tokyo could buy all of America" due to the strength of the yen. Like Japan, Germany is a traditional current account surplus nation, and the appreciation of the Deutsche Mark after the Plaza Accord helped Germany maintain the second spot in net foreign assets.

China became a major current account surplus nation following its accession to the World Trade Organization (WTO) in 2001, thanks to remarkable growth. Hong Kong, as Asia's financial hub, has accumulated large net foreign assets through investments and loans.

Norway is a rare resource-exporting country among advanced European nations. The development of North Sea oil fields has enabled the accumulation of large overseas investments through its sovereign wealth fund (Government Pension Fund Global, GPFG). Taiwan has also accumulated overseas investment income through sustained current account surpluses, and recently, the semiconductor supercycle has pushed its current account surplus to 14.8% of GDP in the first half of this year. Although not included in IMF statistics, Taiwan's net foreign financial assets reached 1.5562 trillion dollars at the end of last year, ranking sixth in the world. Canada, being adjacent to the United States, has also seen its current account surplus contribute to net foreign assets. Singapore, as a global financial center, ranks high due to large-scale investments by its sovereign wealth funds, such as the Singapore Investment Corporation (SIC) and Temasek.

In contrast, the United States, which has consistently recorded large current account deficits, had net foreign financial liabilities amounting to 26.1419 trillion dollars as of the second quarter of this year. This is a vast difference compared to the next country, Brazil, which has 1.0574 trillion dollars in net foreign liabilities.

Korea's Net Foreign Assets: 59% of GDP, Projected to Reach 75% by 2030

South Korea's net foreign assets turned positive from the third quarter of 2014 as external financial assets grew rapidly compared to external financial liabilities after 2010. About ten years later, in the fourth quarter of 2024, net foreign assets exceeded 1 trillion dollars for the first time. External financial assets increased more than sevenfold from 2006 to 2025, surpassing 2.7 trillion dollars as of the second quarter of this year, while external financial liabilities rose only threefold to about 1.6 trillion dollars over the same period.

As of the end of 2024, the ratio of net foreign assets to GDP was 59%, and it slightly declined to about 55% in the second quarter of 2025. According to the IMF's "2024 External Sector Report" published in July this year, this ratio is projected to exceed 75% by 2030. This IMF projection is a much steeper increase than the 2023 forecast. In its 2023 report, the IMF predicted that the ratio, which was 36.4% in 2021 and 46.3% in 2022, would rise to around 56% in the medium term. Since this level was already surpassed two years later, the IMF raised its 2030 projection to 75% in this year's report. The IMF assessed, "Overseas assets are well diversified, with about 40% in securities such as stocks and bonds and about 60% in dollar-denominated assets."

Is an Increase in Net Foreign Assets Always Positive?

*Reference: Bank of Korea Issue Note "Assessment of the Stabilization Potential of Net Foreign Assets and Implications (November 5, 2025)"

As mentioned above, most countries with increasing net foreign assets have export-driven economic structures. In theory, a current account surplus should lead to currency appreciation (stronger won, lower won-dollar exchange rate), which would weaken export price competitiveness and reduce the current account surplus. In addition, improved performance by export companies should be reflected in rising domestic asset prices, particularly stock prices.

However, the reality is moving in the opposite direction from theory. Due to global imbalances caused by excessive consumption and insufficient savings in the United States, the US continues to expand its cumulative current account deficit. At the same time, increased investment in the US by major surplus countries is driving both the value of the US dollar and US asset prices higher. This is also because the US is leading global IT innovation, attracting large amounts of investment. Despite the tariff and reindustrialization policies of the recent Donald Trump administration, it is uncertain whether the US trade balance can fundamentally improve, and it is expected to take considerable time before any real effects are seen.

In South Korea's case, rapid population aging, the so-called "Korea discount" (undervaluation of the Korean stock market), declining domestic asset returns, and large-scale overseas investments by individuals and institutions are all contributing to the sharp increase in net foreign assets. In Japan, where net foreign assets began increasing much earlier under similar circumstances, the ratio of net foreign assets to GDP continued to rise even after reaching South Korea's current level (55%) in 2009. As of the end of 2024, it stands at 83.3%.

Until 2010, Japan's net foreign assets increased mainly through securities investment based on large current account surpluses. Since then, direct investment has driven the increase in foreign assets as Japanese companies expanded overseas due to a shrinking domestic market. In South Korea, deepening population aging and large-scale investments in the US under pressure from the Trump administration suggest that funds that should be invested domestically may increasingly flow into overseas direct investment.

While the increase in net foreign assets has positive aspects, such as improving the income balance within the current account and strengthening external soundness, it also has negative aspects, such as weakening the domestic capital market investment base due to overseas capital outflows and continued pressure for currency depreciation.