The impact of COVID-19 on China's Balance of Payments and foreign reserves: An update

Summary

COVID-19 tends to expand current account surplus while increase capital inflows under capital and financial account. Altogether its impact on China's Balance of Payments is limited.

Key points

• Key points:
• We examine carefully how the COVID-19 outbreak affects different components of the BOP.
• Our preliminary and qualitative analysis show that COVID-19 tends to expand current account surplus while increase capital inflows under capital and financial account.
• We also do a quantitative exercise of forecasting the change of foreign reserves in 2020, based on our above analysis of the BOP shock which shows that foreign reserves will increase to USD 3,220 billion at end-2020
• Although the impact of COVID-19 on China's external sector is limited, the authorities still need to carefully manage the capital account considering the panic market sentiments and potential capital flight.

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