China’s Shrinking Current Account Surplus

The plummet of the current account surplus of China in 2018 triggered a lot of discussion on this issue, for example Tan (2019) reported the glommy Morgan Stanley’s forecast, while Baltensperger (2019) referred to another two articles to counterargue it. In fact, the current account of China has swiftly rebounded back to surplus after a short period of dip in 2018 as shown in Figure 1

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Figure 1 Current Account of China 1999–2019. source: Trading Economics

However, taking a longer term perspective, the decline of the current account surplus of China is quite clear. The uprising since 2004 and then peaked in about 2009, then it is on the downward trend in the past decade. This longer term perspective has just been confirmed by IMF (Deb, Gjonbalaj and Hannan, 2019) report, which was just released in Nov. Here we try to refer to this report and make some insights.

First of all, globally China ranks number 2 in the fall of current account in terms of the percent of country GDP 2018 minus 2008, as shown in Figure 2. It amounts to almost -10%.

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Figure 2 Change in Current Account since 2008. Source: Deb et al. (2019)

More importantly, Deb et al. (2019) posited that China’s current account surplus would continue going down with some interesting observations. Since the figure has not taken into account the US-China Trade War effect, thus the goods output from China was still very strong. The main reason of the fall in the surplus is likely to be due to the components of service account (Figure 3).

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figure 3 China’s current account balance. Source: Deb et al. (2019)

If we take a closer look into the sub-components of the service account, then it tells an untold story why suddenly the number of tourists from China drops substantially, especially to Hong Kong and Macau. It was recently reported that the drop in HK amounts to 46%! Figure 4 shows that the major component causing the drop in current account is the tourism sector. It has been increasing from almost USD0 in 2008 to almost USD300b in 2018!

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Figure 4 Components of Service Account. Source: Deb et al. (2019)

The outflow of foreign currencies by tourists has resulted in a state of crisis, how to stop it has become one of the most important tasks for the Chinese Government.

Worse still, there are some structural changes that are also unfavourable for current account. For example, domestic saving rate has been decreasing from above 50% to GDP to about 45%, “due to an ageing population”. Investment is also expected to decline as “the economy slowly switches from investment to consumption.” (Figure 5)

Figure 5 Investment has likely peaked. Source: Deb et al. (2019)

Coupled with the global recession and the US-China Trade War, China exports have slowed down fast. The Swine Flu breakout in China also forces increasing imports. Combining all these factors, it is plausible to expect a declining current account surplus in China in the coming years.

What are the implications of a declining current account surplus? It would be discussed by referring to Paul Schulte’s model in the next article.


Baltensperger, Michael (2019) Why China’s current account balance approaches zero, Bruegel blog Apr 15.

Deb, Pragyan, Gjonbalaj, A. and Hannan, Ahmed (2019) The Drivers, Implications and Outlook for China’s Shrinking Current Account Surplus, IMF Nov.

Tan, Weizhen (2019) China is going to need more foreign money as its trade surplus dries up, Morgan Stanley says, CNBC Feb 13.

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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