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August 21, 2009

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China's current-account surplus falls

CHINA'S current-account surplus fell 32 percent in the first half from a year earlier to post the first decline in five years due to slumping exports and increasing outbound investments, the State Administration of Foreign Exchange said yesterday.

Analysts said the narrowing surplus in the balance of payments may ease pressure on the yuan to appreciate but it may rebound when the global economy recovers and foreign investors return to China.

China's current-account surplus, the broadest measure of trade, shrank 32 percent year on year to US$130 billion in the first six months, according to the preliminary figures posted on the Website of the SAFE.

"It is not an easy number to interpret. But on the whole, it sends a bad message for China as the falling exports and the declining inward foreign investments seem to play a bigger role than the growing outbound investments in the surplus reduction," said Li Maoyu, an analyst at Changjiang Securities Co.

China's trade surplus in the first six months was US$96.9 billion, down US$2.1 billion from the previous year, with exports plummeting 21.8 percent during the period, according to the General Administration of Customs.

Meanwhile, foreign direct investment in China shrank 17.9 percent to US$43 billion in January to June due to the global economic downturn.

By comparison, China established 907 companies in overseas markets in the first six months, a rise of 43.5 percent from a year earlier, according to the Ministry of Commerce.

The exact value of outbound investments was not immediately available but by calculation, it should be about US$10 billion as China's capital and financial account, which tracks investment flows, showed a surplus of US$33.1 billion, down 54 percent from the previous year.

"The outbound investments appear to be on track for fast growth with a flurry of deals announced in recent weeks," said Stephen Green, an economist at Standard Chartered Bank. "We expect outbound investments may exceed FDI this year."

Under a new rule from May 1, approval for outbound investments has been simplified and mainly handled by local governments.


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