Trade Competitiveness Helps Sustain China's Current Account Surplus
Author:DENG Yuanjing，ZHANG Linlei and CHEN Huimin
The current account balance is a crucial indicator of a country's trade competitiveness and international economic standing. Over the years，China's current account has demonstrated remarkable resilience，serving as the "ballast stone" in maintaining the country's balance of payments (BOP). Looking ahead，the medium- and long-term trend suggests that an increase in the comprehensive strength of the manufacturing industry，the optimization of trading structure，and the diversification of trade partners will provide strong support for China's trade in goods. Additionally，the growth of trade in new producer services and the upgrading of trade in high-tech services will create a new momentum for trade in services，working together to maintain a solid foundation for China's current account surplus.
Steady Growth and Increased Resilience Highlighting Medium- and Long-Term Trends in China's Current Account
Taking a broader view，from 2001 to 2022，China's current account has remained consistent with a surplus which has gone through three distinct stages. The first stage saw a rapid growth of surplus from 2001 to 2008，followed by a fluctuation of surplus from 2009 to 2018 in the second stage，and finally，a further expansion of surplus from 2019 to 2022 in the third stage. In the decade following China's accession to the World Trade Organization (WTO) at the beginning of the 21th century，the current account surplus grew rapidly and expanded further from 2019 to 2022. During the COVID-19 pandemic，China was among the first to effectively control the epidemic and resume work and production，thanks to its strong manufacturing capacity and complete supply chain. This，in turn，has promoted steady growth in foreign trade. According to China's BOP data released by the State Administration of Foreign Exchange (SAFE)，China's current account surplus in 2022 reached US$401.9 billion，second only to the historical high in 2008，with a year-on-year increase of 13.9%.
When examining the composition of the current account surplus in 2022，the growth in the goods trade surplus and the reduction in the service trade deficit stood out as the key drivers，accounting for 125% and 9%，respectively，of the expansion of the current account surplus. Due to ongoing improvements in the manufacturing sector's overall strength，continued trade structure optimization，and the growing diversification of trading partners，China's goods trade has maintained a high level of international competitiveness. In 2022，China registered record-high levels of trade surplus in goods and import-export volume. Its trade surplus in goods reached an impressive figure of US$668.6 billion，marking a YoY growth of 19%，while the overall import-export volume reached US6.3 trillion，reflecting an increase of 4.4%. However，as a result of the speedy expansion of China's trade in developing services and the enhancement of trade in high-tech services，the forecast is that China's trade in services will exhibit a shortfall of USD 92.3 billion in 2022，representing a decrease of 9% year-on-year.
From a global perspective，many traditional surplus countries have seen their current account surpluses shrink significantly since 2022 due to factors such as slowing in global economic growth and the rising food and energy prices. As a result，the number of countries with trade surpluses declined rapidly. However，China has achieved a countercyclical increase in its current account surplus. According to preliminary data from the Federal Statistical Office of Germany，Germany's current account surplus in 2022 was US$154.18 billion，down by 50.9% year-on-year. Similarly，according to preliminary data from the Ministry of Finance of Japan，Japan's current account surplus in 2022 was US$81.83 billion，a year-on-year decrease of 58.6%. The OECD reports that South Korea's current account surplus in 2022 was US$28.55 billion，a year-on-year decrease of 67.7%. The current account surplus of the above three countries decreased by more than 50% . In terms of trade balance，Germany's trade surplus in 2022 was US$84.58 billion，a year-on-year decrease of 59.4%，and has been declining for five consecutive years，reaching the lowest level since 2000. For the first time since the 2008 global financial crisis，South Korea's historically positive trade balance has changed into a trade deficit of US$47.2 billion，reaching an all-time high. Japan’s trade imbalance in reached US$150.98 billion，a rise of 852.7% from the previous year and the highest in more than 40 years.
From the perspective of the current account surplus to GDP ratio，China exhibits greater balance and stability than other surplus economies. Although the absolute size of its current account surplus has gone through a period of fluctuation before expanding again over the past decade，China's current account has consistently operated within a reasonable and balanced range，reflecting the country's coordinated and balanced development of its foreign economy. The ratio of China's current account surplus to GDP experienced rapid growth after 2001，reaching an all-time high of nearly 10% before the 2008 global financial crisis. Since then，this ratio has gradually declined to 1.8% in 2011 and has remained within a reasonable and balanced range of around 2% since 2012. It is worth noting that，internationally，a current account surplus-to-GDP ratio of ±4% is generally considered a reasonable and balanced level. In 2022，China's current account surplus-to-GDP ratio was 2.2% ，representing an increase of 0.4 percentage points year-on-year. This ratio continues to remain within the international warning line.
Trade Competitiveness: The Endogenous Driving Force Behind China's Current Account Surplus
China's Increasing Share of Global Trade Becomes the Main Driving Force Behind Global Trade Development
The IMF's Direction of Trade Statistics report reveals that China's share in global trade，which refers to the proportion of a country or region's total imports and exports to the world's total imports and exports in a given year -- has been on a steady rise since 2001. That year，China's share of global trade was 5.2%，which has since increased to 12.3% in 2021 (see Figure 5). Meanwhile，the trade share of the United States and the European Union has declined significantly over the same period. Despite multiple unexpected factors in 2022，China's foreign trade maintained steady growth，with a trade share of 11.5% in the global market. This represents a slight decrease of 0.8 percentage points from 2021. While ASEAN countries have shown growth momentum in trade share，the gap in trade share between the ten ASEAN countries and China has not narrowed significantly in recent years.
From the perspective of trade growth rate，China has been a major driving force behind the development of world trade for a long time，as evidenced by its high average contribution to global trade growth of 16.6% over the past decade. While other major economies experienced a deceleration in trade growth in 2022 following a robust rebound in foreign trade in 2021，China's foreign trade showed a 4.8% year-on-year increase in 2022 despite global economic growth decelerating，high inflations in the developed economies ，and geopolitical risks on the rise. While ASEAN's foreign trade has increased since 2010，China has exhibited considerable resilience in foreign trade，as demonstrated by its comparatively smaller trade decline compared to ASEAN during three global trade downturns.
China Boosts Resilience in Trade Competitiveness and Strong Comparative Advantage in Manufacturing
In terms of trade competitiveness，China has maintained a higher trade competitiveness index than other major economies for a long time. The Trade Competitiveness Index measures the proportion of a country's net export in its total import and export volume in the current year. A value greater than 0 indicates international solid competitiveness，while a value less than 0 indicates weak competitiveness. In 2022，China's Trade Competitiveness Index stood at 0.2，the highest in the past five years and significantly higher than that of the US，ASEAN，and the EU. While labor-intensive industries such as textiles and apparel have gradually transferred to Vietnam and other countries due to the "de-Sinification" of the industrial chain promoted by Western countries，China's overall trade competitiveness index has remained stable despite a decline since 2016. In contrast，the ASEAN Trade Competitiveness Index has gradually risen since 2015 but has not surpassed China.
China's manufacturing industry has a strong comparative advantage in international trade. The revealed comparative advantage index is used to measure a country or a region's export share of a product about the global trade share，indicating its comparative advantage in a specific industry. According to this index，China's textile and apparel industry has a dominant position in the manufacturing，followed by the machinery and transportation equipment industry. The net export comparative advantage index reflects the trade competitive advantage of an industry，which is the difference between the proportion of a country or regio