China’s ballooning current account surplus has caused a plethora of adverse effects on the healthy development of its economy.Based on an in-depth analysis of the contributory factors to the swelling current account surplus,this paper purports to demonstrate theoretically and empirically that while the chronic savings-consumption imbalance is an important contributor to China’s huge trade surplus,the fundamental underlying contributor is the income structure and savings structure imbalance stemming from the disproportionate increase in retained earnings relative to stagnant wage bills.Corporate retained earnings keep growing rapidly because corporate profit margins are“overstated”and state-owned enterprises“do not pay dividends.”Only when these issues are resolved at the institutional level can the savings rate be reduced to an appropriate level with domestic demand boosted to eliminate excess trade surpluses and fundamentally fix internal and external economic imbalances. China’s ballooning current account surplus has caused a plethora of adverse economy on the healthy development of the economy.Based on an in-depth analysis of the contributory factors to the swelling current account surplus, this paper purports to demonstrate theoretically and empirically that while the chronic savings-consumption imbalance is an important contributor to China’s huge trade surplus, the underlying underlying contributor is the income structure and savings structure imbalance stemming from the disproportionate increase in retained earnings relative to stagnant wage bills .Corporate retained earnings are “overstated ” and state-owned enterprises “do not pay dividends. ” Only when these issues are resolved at the institutional level can the savings rate be reduced to an appropriate level with domestic demand boosted to eliminate excess trade surpluses and fundamentally fix internal and external economic imbalances.