Bloomberg News

China Economy Is Rebalancing, Surplus Declining, Zhou Says

October 24, 2011

(Updates to add Zhou’s comments from the fourth paragraph.)

Oct. 24 (Bloomberg) -- The decline in China’s current account surplus as a share of its gross domestic product shows the nation’s economy is rebalancing, central bank Governor Zhou Xiaochuan said today.

The excess, which comprises the surplus in goods, services and transfers, will fall to about 4 percent of GDP this year from a record high of about 10 percent in 2007 and 2008, Zhou said at a conference organized by internet portal, according to a transcript of his comments on the website.

Chinese leaders have pledged to adjust the nation’s growth model by expanding domestic demand and narrowing its external surplus to help address lopsided flows of trade and investment that contributed to the global financial crisis in 2008. Faster appreciation of the yuan would also help avoid a repeat of the worst recession since the Great Depression, U.S. government officials and lawmakers say.

China’s current account excess, mostly accounted for by the trade surplus, is the key area of “external imbalances” that the nation’s policy makers are tackling, Zhou said today. The exchange rate and price reforms are among the tools used to address the problem, he said, without elaborating.

China overtook Germany as the world’s biggest exporter in 2009.

Government policies have also led to slower investment in manufacturing and an acceleration in spending in services industries, Zhou said.

Yuan Manipulation

Net exports detracted 0.1 percentage point from China’s economic growth of 9.4 percent in the first nine months of the year while consumption accounted for 4.5 percentage points and gross capital formation 5 percentage points, the statistics bureau said last week.

The U.S. Senate earlier this month voted for a bill that would punish countries for depressing their currencies. It would allow manufacturers to seek duties on Chinese imports if they can prove they were harmed by manipulation of the yuan.

Treasury Secretary Timothy F. Geithner said in an Oct. 11 interview that China should allow its currency to appreciate and that he is “very supportive” of the objectives of the bill.

The yuan has strengthened 18 percent against the dollar in the past four years, the most among 25 emerging-market currencies. The yuan rose 0.13 percent to 6.3754 per dollar in Shanghai today.

Premier Wen Jiabao pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported Oct. 15, citing remarks he made in the southern city of Guangzhou.

Narrowing Surplus

China’s trade surplus has narrowed every year since surging to a record $296 billion in 2008. This year’s gap may decline to $170 billion from $183 billion in 2010, Lu Peijun, vice minister at the customs bureau said on Oct. 13.

While the current account surplus may fall “notably” this year, the overall surplus in international payments, which also includes investment and capital flows, may remain relatively large due to “robust” growth in foreign direct investment, Zhou said.

FDI in the first nine months of the year rose 17 percent from a year earlier to $86.7 billion, according to commerce ministry data.

Still, rebalancing efforts by the world’s second-largest economy will “take some time” because existing investment and production capacity in the export and manufacturing industries remain “large” and exporters have the ability to resist policy changes including yuan appreciation, Zhou said.

Building domestic markets and infrastructure for services also takes time, he said.

--Li Yanping. Editors: Nerys Avery, Ken McCallum

To contact Bloomberg News staff for this story: Li Yanping in Beijing at

To contact the editor responsible for this story: Ken McCallum at

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