China’s current-account surplus falls for first time in 5 years

The surplus in the broadest measure of trade shrank 32% to 130 billion, according to preliminary figures posted today on the Web site of the State Administration of Foreign Exchange, the nation’s top currency regulator. China’s capital and financial account, which tracks investment flows, showed a surplus of 33.1 billion, down 54% from last year.
A narrowing balance of payments surplus may ease pressure on the nation’s currency to gain. China has capped appreciation in the yuan for more than a year after allowing it to strengthen 21% since a peg against the dollar was scrapped in July 2005. A government report showed on Aug. 11 that overseas sales declined 23% in July, dropping for a ninth month.
The government has expanded the sources of capital Chinese companies can use to finance outbound investment after foreign exchange reserves topped 2 trillion in the second quarter.
Foreign direct investment into China slid for a 10th straight month, decreasing 36% in July from a year earlier, the commerce ministry said on Aug. 17.
The capital account surplus is likely to rebound because foreign investors will return to China as risk aversion in the global marketplace moderates, said Sherman Chan, an economist with Moody’s Economy.com in Sydney. The regulator will announce final first-half data between September and October.