China's growth in current, capital accounts diverge

BEIJING - The trend of growth in China's current and capital accounts diverged in the first quarter with a smaller surplus in the former and a bigger one in the latter.

China reported both current and capital account surpluses from January to March, marking the sixth consecutive quarterly "twin surplus", according to official data released on Friday.

The State Administration of Foreign Exchange (SAFE) said China had a surplus of $7.2 billion in the current account in the first quarter, down sharply from the $47.6-billion surplus seen in the same period in 2013.

The current account surplus was at the lowest level since the first quarter in 2011.

The country's surplus in the capital account expanded to $118.3 billion in the first quarter from $90.1 billion in the first three months of 2013.

Net foreign direct investment stood at $51.2 billion in the period, $19.3 billion more than the same period last year. And China's foreign exchange reserves increased by $125.8 billion in the first quarter, $31.3 billion less than in 2013.

Zhang Zhiwei, chief China economist with Japan's Nomura Securities, attributed the decline in current account surplus to yuan depreciation, seasonal effect and structural reasons.

Capital inflows were strong last year and some of these were disguised as current account transactions, boosting last year's surplus, while yuan depreciation in the first quarter discouraged such inflows, said Zhang.

There was also a seasonal effect as exports tend to be weak in the first quarter because of the Spring Festival holiday, said the economist.

In his view, structural reasons drove down the current account surplus as well, such as the increased importance of domestic demand.

"We expect the current account surplus to widen through the rest of the year as the seasonal effect in the first quarter fades," said Zhang.

As for the increase in the capital account surplus, Guan Tao, director of SAFE's balance of payments department, said low interest rates and a flood of liquidity outside China, resulting from quantitative easing monetary policies in developed countries, were major contributors.

But Guan said China's balance of payments is within a proper range.

The current account surplus-GDP ratio, a measurement to gauge a country's balance of payments, was 2 percent in China in 2013, lower than the widely recognized proper level of 4 percent, according to Guan.

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