China posts huge second-quarter current account surplus, capital outflows increased

Preliminary balance-of-payments figures suggest that China’s current account surplus in the second quarter reached 120 billion dollars, rebounding from a current account deficit of 34 billion dollars in the first quarter. The goods trade surplus reached a record 161 billion dollars in the second quarter. At the same time, the services trade deficit shrank significantly with the drying up of Chinese travel abroad.

The balance-of-payments figures show net positive inflows of foreign direct investment into China in both the first and second quarters. Despite a massive current account surplus and small FDI surplus, the change in China’s reserve assets in the second quarter was only slightly positive (19 billion dollars). The figure implies that more capital flowed out of China either on record on the financial account or off the record under the “net errors and omissions” term. In any case, capital outflows from China are still much smaller than in 2015 and 2016. Detailed financial account figures will be released later along with revised current account figures.

The value of China’s foreign currency reserves, taking into account valuation changes, has increased by 75 billion dollars since the start of this year. As of end-July the value of China’s reserves stood at 3.3 trillion dollars (includes gold, SDRs and IMF reserves). While the People’s Bank of China has in recent years officially intervened only very little in the forex markets, state-backed entities such as China’s giant commercial banks can still influence exchange rates indirectly. The yuan’s exchange rate has appreciated by about 3 % against the US dollar since late May. At the same time, the yuan has lost about 3 % against the euro. On Friday (Aug. 21), one dollar bought 6.91 yuan and one euro 8.20 yuan.

Main categories in China’s balance-of-payments reporting and changes in reserves, quarterly figures

Sources: SAFE, Macrobond and BOFIT