China Will Keep Current Account Surplus and Capital, Financial Account Deficit This Year, SAFE Says

(Yicai Global) May 4 — China’s foreign exchange regular forecasts the country will maintain its current account surplus this year, with the deficit in the capital and financial accounts, excluding reserve assets, remaining as cross-border capital flow continues its return to equilibrium.

The State Administration of Foreign Exchange made the prediction in its annual report for last year, which was published online yesterday.

The nation’s current account surplus will stay within a reasonable range, the administration said, adding that the commodity trade surplus will remain and the service trade deficit will expand stably as profits from China’s overseas investments grow.

A growing domestic economy, the opening up of financial markets to overseas investors, more rational outbound investors and steady progress reforming the yuan’s market-based exchange rate will lead to the deficit in China’s capital and financial accounts reduce, the report added.

In 2016, the ratio between the current account surplus and gross domestic product was 1.8 percent, down 0.9 point from a year earlier and within a reasonable range, SAFE said. The deficit of the financial account of non-reserve assets was USD417 billion, down 4 percent. By the end of the year, China’s forex reserves amounted to USD3.01 trillion, 10 percent lower than 2015.

China exported USD1.99 trillion in goods last year while importing USD1.5 trillion. Despite being 14 percent lower from the peak in 2015, the USD494 billion difference outstrips levels from 2014 and earlier. Service trade income came in at USD208 billion, down 4 percent from the year prior. Service expenditure grew 4 percent to USD453 billion with a 12 percent deficit at USD244 billion, of which the tourism sector occupied 88.7 percent, 6 percentage point less than a year earlier despite the dollar figure rising 6 percent.

The direct investment deficit stood at USD46.6 billion last year, following a USD68.1 billion surplus in 2015. Net growth in direct investment assets grew 25 percent to USD217 billion, while the liability of direct investments jumped USD170.6 billion, with growth slowing by 30 percent.