China is no longer using trade to fire its economy, despite White House claims that Beijing continues to abuse the rules and rig its currency to undercut rivals in export markets, according to a report by the International Monetary Fund.
China’s trade was almost in balance last year, the country importing almost as much as it exported. At 0.4 per cent of GDP, its current account surplus fell from 1.4 per cent in 2017 and from over 10 per cent in 2007.
The IMF, which provides insight and policy advice, said the improvement in Beijing’s trade balance was helped by a 35 per cent real appreciation of the renminbi over the period.
Washington and Beijing are locked in a trade war, with tariffs on hundreds of billions of dollars of goods, over allegations that China has been stealing intellectual property, subsidising industries and devaluing its currency to the detriment of the US.
However, the IMF analysis said that “China’s external position was assessed to be in line with fundamentals and desirable policies”. The trade villains, running excess surpluses, were identified as Germany, South Korea and the Netherlands. The UK and US have excess current account deficits and should cut government borrowing to fix their imbalances, it said.
The IMF added: “Evidence from the first round of US-China tariff increases suggests these actions had only a small impact on the overall US trade balance because of trade diversion effects through third countries.
It said that China’s services trade swang from a 0.1 per cent surplus in 2007 to a 2.2 per cent deficit last year, “mainly on account of a fourfold increase in outbound tourism. The income balance has also turned negative, despite China’s net creditor position, reflecting a combination of falling global interest rates and rising returns on equity liabilities. Finally, the goods surplus has fallen.”