Turns out that there was indeed a disturbance in the force -- the global balance of payments that is -- back when China changed its balance of payments methodology in 21/22 ... (see the black line in first figure in the first box in the IMF's ESR) 1/
That disturbance -- which I felt, and so did Logan Wright and Adam Wolfe -- came as China used a new internal data set (then undisclosed) to adjust its exports down and move its imports up (relative to its previous methodology, note the fit v the old data before 2020) 2/
The net result was a downward adjustment in China's BoP goods surplus (and its overall current account surplus) that topped $300 billion (1.5 pp of GDP) for a while ... 3/
There were other disturbances in the force as well -- The downward adjustment to the current account led errors and omissions (hot money outflows from China) to disappear even as the PBOC lowered CNY rates below USD rates 4/
And particularly acute observers (including the IMF) were concerned that China's reported income deficit seemed to grow even as US rates increased and China's net foreign asset position improved ... 5/
If the current account surplus is computed using China's pre-2021 balance of payments methodology for goods (perfect backfit) and a 3% return on loans/ bonds and a 8% return on FDI (both ways), China's current account surplus now could be $1 trillion ... 6/
The IMF is starting too look at these questions -- kudos. But it still has a ways to go. The Fund's $365 billion 2025 current account surplus forecast is now dated, but it also reflects some analytic limits in the IMF's current approach ... 7/
Tariff deals take up all the oxygen ... though I suspect the tariff deals will be fleeting (Trump Always Renegotiates -- TAR) while debates about the balance of payments and the IMF's core models are enduring 8/8
PS for the income balance I used a super simple model with constant returns on debt and FDI. SAFE reported that its decade average return for the 10s was 3% by the way. Easy to replicate. But I also have a more sophisticated model -- either way the break comes in 2020
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