MNI INTERVIEW: PBOC Counsellor: U.S. Overstates Trade Deficit

--U.S. Calculation Ignores 'Service Trade' Surplus 

--China Should Be 'Cautious' Using Financial Weapons in Retaliation

--PBOC Should Enhance Prudential Management, Stabilize Forex 

     BEIJING (MNI) - The U.S. has overstated its trade deficit with China by

ignoring Chinese imports of its services, including spending by Chinese tourists

in the world's largest economy, Sheng Songcheng, a counsellor to the People's

Bank of China and a professor at CEIBS, told MNI in an interview.

     The current escalating trade dispute between the two large trading nations

centres around the $375 billion trade imbalance in goods currently in favour of

China and seen by President Donald Trump as hurting U.S. interests.

     The central bank advisor stressed that the trade deficit has been

overvalued by at least 12% after adding the service trade surplus, even going by

U.S standards of calculation.

     "It is inaccurate to talk about the Sino-US trade imbalance without

considering the whole picture of trade in both goods and services," Sheng said

Sunday.

     --ALL OPTIONS

     China retaliated against Trump's initial provocation by targeting core U.S.

exports, including soybeans and aircrafts. Last weekend, China vowed all options

are open to strike "immediately with large force" after Trump announced another

$100 billion of possible tariffs on Chinese exports.

     So far, none of the tariffs threatened have come into effect. According to

Sheng, it is unnecessary to retaliate via a currency devaluation. He also said

that Beijing should be cautious in adopting approaches such as reducing holdings

of U.S Treasuries.

     "Chinese policymakers should enhance the prudential management of foreign

exchange," he said.

     The U.S is the biggest external services exporter to China. According to

statistics from the Bureau of Economic Analysis, the service trade surplus of

the U.S to China was 15.9% of its total service surplus in 2017, increasing 12

percentage points in 10 years. The Sino-U.S. service surplus grew about eight

times in the period from 2008 to 2017 in dollar terms, compared with 1.4 times

increase in the goods trade deficit.

     On China's international payment balance sheet, goods purchased by outbound

tourists are categorized into service trade, which means part of the traded

goods is included in service trade, Sheng said.

     --SERVICE TRADE DEFICIT

     The deficit in tourism is the biggest contributor to China's service

deficit, taking nearly 85% of the whole service trade deficit of the country,

according to Sheng. "Statistics show that Sino-US trade relationship is mutually

beneficial," he said.

     Trade conflicts present China an opportunity to upgrade its industries, and

the restrictions imposed by the U.S on Chinese goods will push Chinese

manufacturers to improve quality and efficiency, which will help China

ultimately, he said.

     Despite the trade tensions, China will further open up its service sector

and increase its own competitiveness. "For example, the exclusively

foreign-owned rating companies have been allowed access to the interbank market,

which is aprogress we would like to see," Sheng noted.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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