The Impact of Record Trade Surplus on China’s Economy

China’s economic growth and the yuan may suffer this year as a result of a global economic slowdown and increased outbound tourism, leading to a decrease in exports and a potential decrease in the current account surplus. Economists surveyed by Bloomberg predict that the surplus will fall from 2.3% to 1.4% of GDP this year.

This decrease in exports will not only affect economic growth, but it will also put pressure on the currency to depreciate. The export sector, which employs over 180 million people, has been a key support for the economy during the pandemic. However, the slowdown in trade this year, will dampen business and household income and add to the challenges of expanding domestic demand.

Dan Wang, the chief economist of Hang Seng Bank China, predicts that China will see a trade deficit in 2023, which will drag down GDP growth and depress profits and employment in the manufacturing sector. A reversal in the trade balance will also affect expectations for the Chinese currency and increase the volatility of yuan-denominated assets.

The contribution of trade in goods and services to GDP growth last year was 0.5 percentage points, which resulted in a total expansion of the economy by 3% for the year, according to the National Bureau of Statistics. This marks a change from 2018 when the trade war with the US caused a decline in growth.

However, UBS Group AG’s chief China economist, Wang Tao, estimates that net exports of goods and services will detract from GDP growth by half a percentage point this year, compared to a 1 percentage point increase last year. Wang calculates the contribution differently from the government.

In late 2021, the trade situation deteriorated as evidenced by a 10% decrease in goods surplus during the fourth quarter when compared to the same period in the previous year, according to data from the State Administration of Foreign Exchange analyzed by Bloomberg. This marks the first decline in four consecutive quarters.

Additionally, the services trade deficit rose by 89% in the final quarter of 2022, compared to the previous year, which is the first time it has expanded since the end of 2018. Despite the deficit remaining less than half of pre-pandemic levels, it is expected to worsen due to Chinese consumers traveling overseas. In December, the purchases of foreign currency for services trade reached the highest level since March 2020.

Noah | Contact

Meet Noah, a full-time news writer based in New York City. With a passion for investigative journalism and a keen eye for detail, Noah has made a name for himself in the fast-paced world of news writing.