China | When its current account turns deficit…

Summary

Recently, the surplus of the current account also narrowed significantly. Looking ahead, a combination of “current account deficit” and “capital account two-way fluctuation” could become a “new normal” for China’s Balance of Payments (BoP).

Key points

• Key points:
• Recently, the surplus of the current account also narrowed significantly.
• A combination of “current account deficit” and “capital account two-way fluctuation” could become a “new normal” for China’s BoP.
• The US-China trade war, the expansion of service trade deficit, shrinking saving-investment gap contribute to this change.
• Current account to GDP ratio will shrink to -0.18% in 2019 from 0.36% in 2018, and further decline to -0.11% and -0.03% in 2020 and 2021.
• This new situation is set to bring new challenges to Chinese policymakers in maintaining domestic financial stability and pushing forward necessary financial liberalization reforms.

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