China has understated the scale of its current account surplus through changes in the way its trade data is reported, allowing it to appear smaller than Europe’s and gaining acceptance for those figures from the International Monetary Fund (IMF), according to a report published by the Council on Foreign Relations (CFR).The report argues that a widely cited chart used by institutions such as the IMF and the OECD presents a misleading picture of global trade imbalances by suggesting that Europe’s current account surplus, relative to its economic output, exceeded China’s in 2024.“There is a particular chart that appears in most OECD and IMF publications on imbalances that paints a deceptive picture of the state of today’s world. It shows that Europe’s current account surplus was bigger, as a share of its GDP, than China’s surplus — back in 2024,” the report states.According to the CFR, the comparison relies on incomplete data and fails to capture the sharp rise in China’s surplus since late 2024. It notes that China’s reported current account surplus increased from about $400 billion to roughly $750 billion, while net exports contributed more than 1.5 percentage points to economic growth. During the same period, the eurozone’s surplus fell from around 420 billion euros to 280 billion euros.The report also highlights China’s growing dominance in the automotive sector. It says the country’s vehicle exports have risen by around three million units since 2024, while auto imports have declined by approximately 250,000 units, widening its trade surplus in the industry.The CFR further argues that comparisons with Europe are distorted by Ireland’s unusually large surplus, which it says is inflated by profit-shifting practices employed by multinational corporations including Apple, Microsoft and Google.Once Ireland is excluded from the calculation, the report claims China’s combined goods and services surplus is roughly twice the size of the euro area’s and has expanded considerably over the past five years.“It takes the Chinese current account surplus and its bizarre reported deficit in investment income (China is the world’s second largest investor, after Germany, yet it loses $125 billion on net on interest and dividends while Germany gets over $150 billion) at face value,” the report points out.The report contends that Beijing altered its balance-of-payments methodology in 2022 in a manner that removed errors and omissions from the financial account while simultaneously reducing the reported goods surplus. The revised methodology was also applied retrospectively to 2021 data.According to the CFR, these statistical adjustments significantly lowered China’s reported current account surplus at a time when the country’s customs-based trade surplus was rising sharply.The report argues that international institutions assessing global trade, savings and investment imbalances should not rely solely on China’s reported current account figures.“The need for international organisations assessing the world’s trade and savings and investment imbalances to use more than the reported current account balance in their assessment of China should now be obvious. No one believes the reported investment income deficit at this point. And frankly, it by now, should be best practice for the major international organisations to use trailing four-quarter sums (which are still lagged by quarter) rather than annual data,” the report states.After making the necessary adjustments, the CFR says China’s goods and services surplus exceeds Germany’s and is larger than commonly reflected in international assessments. It added that these discrepancies are significant enough to warrant greater consideration in the analytical work of institutions such as the IMF and the OECD.
