Yu Yongding — China’s Flawed Balance-of-Payments Position

The balance-of-payments figures that China’s State Administration of Foreign Exchange (SAFE) released in April should have triggered serious concern, if not alarm. The data adjusted China’s investment-income deficit for 2011 from $26.8 billion to $85.3 billion – a massive revision that casts doubt on the reliability of China’s balance-of-payments statistics and exposes a flaw in the economy’s growth path. But few people seem to care.
According to SAFE, as of February 2012, China had accumulated $4.7 trillion in foreign assets through purchases of United States government securities and other investments, and more than $2.9 trillion in foreign liabilities through foreign direct investment (FDI) and borrowing. This puts China’s net foreign assets at roughly $1.8 trillion.
But, despite China’s position as one of the world’s largest creditors, its net investment-income balance is deeply negative. In fact, China has run investment-account deficits for six of the last nine years, with preliminary statistics suggesting a deficit of $57.4 billion in 2012.

Project Syndicate
China’s Flawed Balance-of-Payments Position
Yu Yongding was President of the China Society of World Economics and Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.