Balance of payments data from the State Administration of Foreign Exchange (SAFE) last week reported a sharp decline in China’s current account surplus, from $74.2 billion in Q3 2016 to only $11.8 billion in Q4. SAFE attributed this change to revised estimates of earnings from foreign companies, which were not repatriated, most likely because of newly imposed capital controls. The data adjustment therefore indirectly boosted foreign direct investment inflows as these profits were reinvested in China. The bottom line is that despite SAFE’s adjustments, China is still posting strong goods surpluses and larger services trade deficits, while foreign investment flows into China are still weakening.
