Recent data on China’s external accounts presents a conundrum: while the country’s trade surplus has broken records, surpassing the US$1 trillion benchmark in the first 11 months of the year, growth in its official foreign exchange reserves has lagged. This seeming paradox prompts a question – where did the money go?
Analysts said the gap reflects how much of the surplus has flowed back overseas through asset investment, largely made by private-sector players, leaving China’s external accounts more balanced than the headline trade figures suggest.
Han Shen Lin, capstone director for the quantitative finance master’s programme at New York University Shanghai, said the trade surplus “doesn’t automatically mean a rise in official reserves any more,” as a significant portion is being recycled through the private sector.
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“What we’re seeing is a shift from state-led reserve accumulation to market-led capital outflows,” Lin said, noting Chinese firms are paying down foreign debt, building overseas assets or keeping earnings offshore.
“The money hasn’t disappeared; it’s just no longer sitting on the People’s Bank of China’s balance sheet.”
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The role of the private sector has grown in parallel with the overseas footprints of Chinese firms in recent years, as narrowing domestic profit margins and rising production capacity push more companies to “go global” in search of new markets.