China’s Service Trade and Dwindling Current Account Surplus

Guan Tao (管涛)1 and Wang Xiaotong (王霄彤) 2*
1 Dong Furen Economic & Social Development School, Wuhan University, Wuhan, China
2 National School of Development, Peking University, Beijing, China

Abstract: Recent years have seen sharp increases in China’s trade deficit in services, especially in tourism, arousing concerns over a potential capital flight from China. Such concerns appeared to be justified by China’s balance of payments data, whose statistical scope was officially modified retroactively since 2014. To overcome the impact of changing statistical approach, this paper uses banks’ cross-border customer payment and receipt data to re-estimate China’s service trade, and finds that China’s service imports did not increase abnormally from 2014 to 2016 as some researchers reckoned. With the re-estimated service trade data, we find that the relationship between China’s GDP per capita and travel imports as a share of service imports since 2001 tallies with those of emerging Asian industrial countries before the Asian Financial Crisis in 1997, indicating that China’s travel import growth in recent years did not deviate from the long term trend and international experience. Furthermore, this paper finds that China’s travel imports did not significantly influence the stock and housing markets in the US, Hong Kong and the EU as major travel destinations, thus refuting the argument that massive capital has fled China for overseas markets.

Keywords: service trade, tourism trade, capital flight, external balance
JEL Classification Codes: F1, F3, F4
DOI: 1 0.19602/j .chinaeconomist.2020.05.02

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