MNI: China Q1 Curr Acc Records First Deficit In Nearly 20 Yrs

--SAFE: FX Reserves Increase $26.6 Bln in Jan-Mar vs PBOC's $18.64 Bln Fall

--Capital Inflow Continues to Expand; Largest in 4 Yrs

     BEIJING (MNI) - China's current account showed a deficit during the Jan-Mar

period, the first deficit since the second quarter of 2001. The deficit was due

to the rapid growth of imports largely surpassing an increase in exports, as

China emphasizes import expansion and boosting domestic demand to offset the

uncertainty of the outside trade environment.

     The State Administration of Foreign Exchange (SAFE) announced Friday that

the current account, which includes net error and omission numbers, recorded a

$28.2 billion deficit at the end of the first quarter, compared with a $62.2

billion surplus in Q4, 2017.

     The forex regulator attributed the deficit to fast increasing consumer

goods imports, which rose 21% year-on-year to $476.2 billion, while goods

exports grew by 11% to $529.6 billion.

     For the whole quarter, the surplus in the goods trade account dropped 35%

year-on-year to $53.4 billion, and the deficit in service trade account rose to

$76.2 billion.

     "Import growth exceeding an export increase helps balance our consumer

goods trade account," SAFE said, adding that the current account will remain in

a reasonable range for the whole year as seasonal effects fade.

     The figures are preliminary, and SAFE is expected to release revised and

more extensive data at a later date.

     --NARROWED SURPLUS

     The world's second largest economy saw a narrower trade surplus in Q1 as

Wang Chunying, the spokeswoman of SAFE, said in the latest press conference.

"China is not pursuing a trade surplus... the international payment will

maintain balance this year."

     This may be a music to the ear of the U.S as it points to a Sino-US trade

surplus  of $375 billion, which is a trigger of the current trade spat.

     According to the General Administration of Customs last month, the trade

surplus in Q1 narrowed to $48.39 billion, down 21.9% from a year earlier.

     --CAPTIAL INFLOW

     SAFE said the capital and financial accounts surplus widened to $28.2

billion, the largest since Q1 2017. The non-reserve financial account turned to

a $54.5 billion surplus, the biggest since Q1 2014.

     "The surplus in the non-reserve financial account indicated the net

across-border capital inflow," SAFE said.

     During January to March, direct investment recorded a net inflow of $50.2

billion, increasing by a factor of 3 year-on-year, while foreign direct

investment grew 1.1 times to a net inflow of $68.2 billion and outbound direct

investment dropped 12% year-on-year to a net outflow of $18.1 billion.

     SAFE also said the country's foreign-exchange reserves rose by $26.6

billion in Q1. The People's Bank of China had previously reported a decline in

forex reserves of $18.64 billion during the same period, but the SAFE figure

excludes valuation and exchange rate changes and is a better reflection of real

money flows.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com