CKGSB Knowledge - China Business and Economy

TRADING PLACES

In early August, just as the United States was escalating its trade war with China, the release of a surprising set of economic data briefly threw the media debate off course.

Since February, attention had been focused on China’s $375 billion trade surplus with the US. President Donald Trump had repeatedly pointed to the massive surplus as evidence that China was a mercantilist power “ripping off” America.

But on August 6, China’s State Administration of Foreign Exchange released figures that complicated this narrative. The country’s current account, which is effectively determined by its overall balance of trade in goods and services, dipped to a deficit of $29 billion for the first half of 2018. Though China is still “ripping off” the US, it is also now being ripped off by the rest of the world.

The move into deficit underlines the fact that China’s economy is undergoing fundamental changes that will have impacts far beyond its borders. A decade ago, China’s huge current account surplus was the symbol of its status as the “factory of the world.” The surplus surged following China’s entry into the World Trade Organization in 2001, reaching a peak of 9.9% of gross domestic product (GDP) in 2007.

But in recent years, that surplus has been

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