Back to Twin Surplus
More balance experienced when it came to the rest of the world and Chinas’ economic relationship. This is mainly due to the economic stability that china is enjoying at the moment. In 2013, china’s BOP (balance of payments) swung back to twin surplus after temporally dropping its financial account in the year 2012. Also in 2012, the surplus remained almost at the same level. Its trade surplus increased at a very high rate and almost topped the record levels of 2008. It is worth noting that much of the increase largely depended on the goods trade balance that was initially made up for by a great services trade deficit. One of the factors of this swing was the payments that originated from tourism.
It also experienced a large swing as a result of currency expectations. The financial account is the one that showed the greatest swing that enjoyed a surplus of approximately $260 billion from a net deficit of $ 21 billion. There was marginally widening of surplus in securities investment. This was largely due to the already existing inflow restrictions to different channels. The bulk change came from surplus inflows that captured loans, trade credit, and currency holdings deposits.
Another thing that gave rise to this swing is the decisions of banks and firms to hold or sell foreign exchange. There is a lower surplus than expected in the current account. This suggests that china will again be able to extend the break it has received in recent years from its economic partners regardless of any external pressure. However, there is more expectation on china’s superiority to emerge once more in 2014 due to the following reason: In dollar terms, the trade balance of china grew to $360 billion which is almost the same level as in 2008.
This means that china will have to pressure itself in adjusting to goods trade balance that is done through the exchange rate.