Economic Daily:

The SAFE has always stressed the importance of the current account. What impacts will the COVID-19 pandemic have on the current account in the balance of international payments? Is it possible to see a sustained current account deficit? Thank you. 

Wang Chunying:

The pandemic does have some impacts on China's current account of the balance of payments, and we have been conducting the following analysis on this issue. Based on the current situation, we have made some preliminary estimates of impacts that the pandemic will have on China's balance of international payments.  

First, China's current account development has been affected by the pandemic, but it will remain basically balanced in the first quarter. According to data from Customs, exports dropped by 13% in the first quarter, and imports declined by 3%. However, the decline of exports in March has slowed down, so the trade surplus in the first quarter has narrowed. In terms of services trade, according to SAFE statistics, China's deficit narrowed by 25% in January and February with a sharp dip in tourism expenditure. According to preliminary statistics, tourism expenditure remained low in March, which indicates that the services trade deficit has narrowed. China's balance of international payments is mainly composed of cargoes trade and services trade. Due to its low income and current transfers, we must analyze the development of the current account, with the analysis of cargoes trade and services trade being our priorities. China's cargoes trade surplus and services trade deficit narrowed simultaneously in the first quarter; therefore, the current account will most likely remain stable within a reasonable range.  

The second fundamental judgment is that the outbreak will not affect China's current account in the medium to long term. The pandemic develops and changes according to its own underlying rules. As scientists, biologists and pharmacologists make knowledge gains, R&D progresses, methods grow and we accrue experience, the pandemic will be effectively curbed, and the global economy and trade will gradually recover, thus easing external demand difficulties. Domestically, coordination between epidemic prevention and control and economic and social development is proceeding in an active way. According to statistics by the Ministry of Industry and Information Technology (MIIT), the work resumption rate of industrial enterprises above the designated scale had exceeded 99% by mid-April, with a 94% rate of personnel returning to their posts. With the resumption of work and production gearing up, domestic supply and demand have been secured on the one hand, and supplies for the foreign market have been secured on the other hand. Therefore, we think the outbreak will not affect the current account in the medium to long term.

The third judgment, which I mention each time, is that the defining factor affecting the current account is the domestic economic structure and other underlying and long-term factors that cannot be altered easily. First, China's manufacturing is hefty and has complete sectors, so it has a strong resilience and an ability to cope with pressure. In recent years, China has insisted on the supply-side structural reform, its industrial chains keep upgrading and manufacturing has been more competitive. Second, the domestic economic structure has constantly improved, and investment has been more efficient. Despite a drop in recent years, China's savings rate is still relatively high compared with the international level. In theory, the gap between savings and investment dictates the current account, and in this perspective, China's international current account positions can be kept basically balanced.

The current account has been kept within a balanced range. Affected by some short-term uncertain factors, it sometimes may run a small deficit or a small surplus, but it is still within a basic balance. For example, the current account surplus in 2018 fell to $25.5 billion, during which it ran a deficit for the first two quarters and then reversed to a surplus in the third quarter. The surplus later widened to $141.3 billion in 2019. However, this did not change the fact that China's current account is basically been kept balanced. Thank you.