China records first current account deficit in 20 years in H1 2018
China’s current account deficit stood at $28.3 billion in the January-June period, down from $34.1 billion in the first quarter, courtesy the US-China trade war
Beijing: Amid the trade war with the US, China has reported a current account deficit of $28.3 billion in the first half of 2018—a first in 20 years for the world’s second largest economy. China also recorded its first quarterly current account deficit in nearly 17 years this year, ending its dream run of accumulating trade surplus as top exporter for years.
China’s current account deficit stood at $28.3 billion in the January-June period, down from $34.1 billion in the first quarter, the State Administration of Foreign Exchange (SAFE) said in a statement.
China’s service trade posted a deficit of $147.3 billion up from $73.6 billion three months earlier.
The spending on trips, transport, and intellectual property rights contributed to the bulk of the deficit, state-run Xinhua news agency reported. The country, however, saw a goods trade surplus of $155.9 billion in the first half of 2018.
China’s current account surplus has been steadily shrinking since the 2008 economic crisis—from 9.9% of GDP in 2007 to 1.3% in 2017—as it moved towards increasing domestic consumption to reduce dependence on declining exports—a mainstay of its economic growth. It posted 6.9% GDP growth last year and the government has fixed 6.5% as this year’s growth target.
Analysts forecast a narrowing surplus or more frequent current account deficits against the backdrop of the US-China trade war. As goods trade comes under pressure and service trade continues expanding, China may see more current account deficits, Zhang Ming, chief economist at Ping An Securities, was quoted as saying by the Ciaxing magazine. Zhang said the China CAD also reflects a falling domestic saving rate, which may be partly because of the aging population.
US President Donald Trump has over the past few months piled on import tariffs on Chinese goods to reduce the US-China trade deficit pegged at $375 billion in total bilateral trade of $636 billion.
Though concerned about the impact on its exports to the US, China too has responded with retaliatory tariffs to protect its interests. SAFE said that China’s international balance of payments was within a range of equilibrium last quarter and will continue to remain reasonable in the future. The data also showed stable cross-border capital inflows in the second quarter.
China’s financial account maintained net inflows, with a surplus of $18.2 billion. Net foreign direct investment stood at $58.6 billion.
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