China’s First Current Account Deficit in 17 years

China has recorded its first quarterly current account deficit in nearly 17 years, ending its dream run of accumulating trade surplus as a top exporter for a period during which it amassed the world›s largest foreign exchange reserves of over $3.14 trillion.

China saw a current account deficit of $28.2 billion in the first quarter of this year, the country›s first quarterly deficit since the second quarter of 2001, data released Friday by the State Administration of Foreign Exchange, or SAFE, showed, PTI reported.

The goods trade still ran a surplus of $53.4 billion, but registered a 35% slump year-on-year, while the service trade posted a deficit of $76.2 billion, the biggest quarterly deficit since 1998, China›s Caixin magazine reported.

SAFE tried to play it down saying that the rare red figure in the current account was a result of «seasonal factors», but economists said it could signal a fundamental shift in China›s international payment position, which in turn is a result of global economic rebalance in the last decade.

Ding Shuang, the chief China economist with Standard Chartered in Hong Kong, wrote in a note that China has run a current account surplus on an annual basis in the past 25 years and «people tend to take (China›s) surplus for granted».

«A moderate shock, against the backdrop of intensifying trade frictions, can push China›s current account into deficit,» Hong Kong-based South China Morning Post quoted him as saying.

For China, the dip in its current account could not have come at a worst time as it is engaged in crucial trade talks with the US to meet the demands of President Donald Trump to reduce America›s $375 billion bilateral trade deficit immediately by $100 billion and $200 billion by 2020.

The two-day talks between the US delegation, led by Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He ended in Beijing Friday during which they are reported to have reached some agreements while major differences remain.

Both sides lined up tariff hikes on a spate of items to resort to a tit-for-tat increase if the trade talks fail amid assertions by Trump that he is ready for a trade war.