China's Current Account Surplus $160.8 Billion

I see via the Morgan Stanley daily global digest that China's current account surplus in 2005 reached a full $160.8 billion, which is as high as in Japan, who until now have had the largest surplus in absolute terms.

That is higher than most analysts had expected. While a large surplus was a virtual certainty given the large trade surpluses already reported, it was somewhat surprising to see the significant factor income surplus. Surprising given how so much of Chinese exports are from factories owned by foreign companies (For this reason, this post showed a deficit from 1993 to 2004). But apparently, this was overwhelmed by the large portfolio investment income.

These numbers, which reflect China's extremely high savings rate, is of course likely to add on to the pressure for China to significantly raise the foreign exchange value of its currency, the yuan. That however could prove counterproductive due to the somewhat childish need of the Chinese government to show that it does not give in to foreign pressure.