Abstract: Against the backdrop of shrinking marginal demand overseas and the domestic economy converging towards potential growth, our projection for China's current account surplus in 2024 stands at $201.2 billion, marking a reduction of approximately $45 billion compared to 2023. On the one hand, exports are expected to persist in a strategy of 'quantity over price,' where the growth in export quantity is offset by deteriorating trade conditions, resulting in a decline in the goods trade surplus. On the other hand, there is a high probability of an increase in the service trade deficit, possibly approaching levels observed in 2019. Despite the inverted yield curve domestically and internationally, which usually leads to a reduction in the income deficit, it remains insufficient to fully offset the decline in the aforementioned surplus. However, in terms of exchange rate, more surplus does not necessarily imply less pressure, while a declining surplus does not necessarily exacerbate the pressure. In fact, a larger surplus may correspond to a greater level of exchange rate pressure.
