Critics’ concerns about China’s industrial overcapacity overlook the broader picture of the country’s balance of payments. While China maintains a surplus in goods trade, it is offset by significant deficits in services and investment income. This balanced approach points to a more nuanced economic exchange rather than simple dumping of excess production.
When discussing China’s economy, overcapacity often takes center stage, but this overlooks the full balance of payments picture. As an opinion piece in the South China Morning Post points out, the right question is whether China’s overall current account represents a destabilising imbalance that siphons growth from trading partners.
Goods trade is only one slice of China’s external balance, increasingly offset by large outflows such as imports of services and investment income payments. Data shows China’s total current account surplus at US$657 billion, or 3.4 per cent of gross domestic product (GDP). This implies China effectively runs a huge services and income account deficit. The country is a major importer of foreign services, ranging from transport to financial services.
This matters because overcapacity is a macroeconomic concept, not a sectoral talking point. A country that exports manufactured goods but imports services and pays income abroad is not simply dumping excess output on the rest of the world. It engages in a more complex exchange in which incomes associated with production are partly recycled back to the world economy through service imports and capital income repatriations.
The article highlights how this view informs China’s interactions with the Global South, including industrial policy, trade surpluses, and the Belt and Road Initiative (BRI). Foreign direct investment and services trade further underscore the interconnectedness of China’s economy, rather than isolated overcapacity issues.
