Photo by The State Council The People's Republick of China

JAKARTA (TheInsiderStories) – China posted a current account surplus of US$54.6 billion in the fourth quarter (Q4) of 2018, a 134.3 percent increase from the previous quarter, said senior economist at IHS Markit Yanjun Lin, on Tuesday (02/19).

The improvement in the current account balance was mainly driven by an increase in the surplus in goods trade, he added. Because exporters front-loaded shipments to the United States (US) to avoid new tariffs, goods surplus jumped by 38 percent quarter-on-quarter (QoQ) in Q4. But, services trade deficit narrowed by 20.8 percent QoQ.

The current account surplus for the whole year of 2018 was only $49.1 billion, the lowest since 2003. As the government stepped up efforts to open more sectors to foreign investors, the net inflow of direct investment jumped from about $100 million in 3Q to $ 27.5 billion in 4Q. However, reserve assets fell by $28.2 billion in 4Q.

So far, China is expected to significantly increase its imports from the US in order to de-escalate trade tensions, which will put downward pressure on its current account balance. China might even run current account deficits in the coming quarters, viewed IHS Markit.

Therefore, Chinese government has opened more sectors to foreign investors, strengthened intellectual property right protection and drafted a foreign investment law to ban forced technology transfers. These measures will help attract more foreign direct investment into China.

As MSCI has added, Chinese stocks into its Emerging Markets Index is also slated to include the bonds. The inflow of portfolio investment is expected to increase steadily in the quarters ahead.

Written by Daniel Deha, Email: daniel@theinsiderstories.com