In its latest China report, the IMF has identified inconsistencies in the People’s Republic’s trade balance. There is more to this than just dry statistics – the discrepancies could have a major impact on the global economy, reports Marcel Grzanna.
This means that China artificially understates its trade surplus. The trick used is simple: Products that are manufactured in China for foreign companies but sold domestically appear as imports in the balance of payments. This disguises a surplus, while Chinese overcapacity continues to flood the global markets. This leads to a distortion of competition and, in the worst case, to a destabilization of international markets.
China often struggles with its soft power. On the one hand, it proudly points to its thousands of years of cultural history, but on the other, it imposes a corset on its artists, writers and filmmakers of the present day with rigid censorship that stifles creativity. A new video game could herald a turning point. Developed in Shenzhen and Hangzhou, “Black Myth: Wukong”, which revolves around the mythical monkey king Sun Wukong, triggered international hype shortly after its release thanks to its sophisticated graphics.
However, Jörn Petring reports that the game is not entirely without moderation and censorship. Content creators and streamers have apparently been given a list of topics that they should not talk about in connection with the game, including the characters’ gender balance, which is probably not very even. Western media are also being slammed in the Chinese state media, which allegedly want to immediately belittle every “Chinese achievement”.
It is only the appendix to an annual report, but it packs a punch. From page 101 in Appendix VII of the latest China report, the International Monetary Fund (IMF) makes it clear that there is something fishy about the current account surplus officially reported by Beijing. The IMF wonders about the growing difference between China’s balance of payments and customs data. To be more precise, China’s trade surplus appears to be significantly lower in the light of the balance of payments than the customs data would suggest.
What may sound like a trivial statistic is of great relevance. The trade surplus, which documents the imbalance between an economy’s imports and exports, provides information on the extent to which the People’s Republic unloads its excess manufactured industrial products abroad. The greater the surplus, the greater the quantity of goods that could be shipped abroad. Particularly in view of the international competitive pressure on European industry, the figures are important when assessing possible countermeasures.
According to US economist Brad Setser from the Council on Foreign Relations (CFR), the IMF report raises the question of whether China is manipulating the volume of its exported goods. Setser says that China is “basically running a trade deficit with itself.” To understand what he means by this, it helps to take a look at the creative method of Chinese calculation.
The trick works as follows: If a foreign company in China has its goods produced by a Chinese company and pays the producer for the order, the balance of payments registers this transfer as an export. However, the goods have never left the People’s Republic. This maneuver is called factory-less production.
This would all be understandable if foreign companies sold these goods outside of China, thereby effectively generating exports. In reality, however, these goods are sold within the country and then registered as imports by the Chinese authorities, even though they were produced domestically.
Because the products are sold to end customers in China at a significantly higher price (imports) than the Chinese producer collects from the foreign company for their manufacture (exports), these supposed imports generate a deficit in the balance of payments. This artificially reduces the volume of China’s trade surplus.
According to Setser, “a detailed examination of the data” shows that the Chinese balance of payments deviates from the customs data on both sides. This means that, on the one hand, the volume of exports according to the balance of payments is far below the volume of customs exports. On the other hand, imports according to the balance of payments are higher than imports according to customs, although they should be lower due to the adjustment of insurance and freight costs.
“The goods surplus in the balance of payments is now about $300 billion less than it should be in the balance of payments data. At no point is there a corresponding correction in the trade balance,” says Setser. According to official data, the trade surplus in China in the first six months amounted to US$434.9 billion. This would have meant an increase of around 8.6 percent compared to the previous year.
However, the questionable reliability of the data leads to the conclusion that Chinese overcapacity is instead flooding the global markets to a much greater extent than the official data would suggest. “And I firmly believe that the customs data – which captures actual trade – tells the story correctly, not the current account data fitted with a model (and an internal survey),” says Setser.
The economist also wonders how the decline in real estate investment by six percentage points of economic output can be reconciled with a decline in China’s current account surplus. Because, he argues, “the current account surplus is savings minus investment, and savings have not fallen by seven percentage points of GDP.”
The reason why no one has noticed this so far is probably due to the switch to an opaque methodology, which China now uses to collect financial data directly from large companies. Accordingly, more than 13,000 large companies report data on trade in goods, which accounts for around 70 percent of total trade in goods, directly to the authorities. For the rest of the companies, the compilers use cross-border receipts and payments in goods trade, which come from the International Transactions Reporting System.
The figures therefore suggest that the gap is significantly smaller and that concerns about growing Chinese overcapacity are therefore unjustified. After all, overcapacity is poison for other economies, which are suffering from a flood of Chinese goods at ridiculously low prices. “China ‘s overcapacity will become a global problem above all if it leads to a further increase in the trade surplus in industrial goods. According to the customs data, this was obviously the case,” says Jürgen Matthes from the Cologne Institute for Economic Research (IW).
Matthes considers it “highly problematic when China dubiously minimizes its trade surplus reported in the balance of payments because this indicator is often looked at even more frequently by analysts than the customs data.” It is therefore very important that we now have a better understanding of what exactly leads to the glaring and increasing differences.
An embellished Chinese balance sheet may also reduce the willingness elsewhere to take political countermeasures that are not in China’s interests. Take the EU, for example: Brussels has imposed countervailing duties to protect its own manufacturers from cheap competition from China. This makes exports – and therefore the reduction of overcapacity – much more difficult for Chinese manufacturers because demand is falling.
“If the development of the trade surplus in goods trade based on the customs data continues like this, China should not be surprised if more and more countries protect their markets against a flood of Chinese goods, which are also often directly and indirectly subsidized,” warns Matthes.
It is currently the number one topic of conversation among gamers: “Black Myth: Wukong” has made it to the top of the sales charts on Steam, the world’s best-known sales platform for computer games, in a very short space of time. This is particularly remarkable because it is the first time a Chinese game has managed to achieve such success.
Within 24 hours of its release, it broke the record for the most-played single-player game ever published on Steam. After three days, over ten million people had already bought the game.
“Black Myth: Wukong” is an action game developed by the Chinese company Game Science. Players take on the role of the “Chosen One” – an anthropomorphic monkey with supernatural powers. The character is based on Sun Wukong, the Monkey King, a central figure in “Journey to the West”, one of the most important works of Chinese literature. The novel draws deeply from Chinese mythology as well as Confucian, Taoist and Buddhist lore.
In August 2020, the developers first announced “Black Myth” with an online teaser that was shared millions of times. Fans then waited four years until its release last week. Experts agree that it is the first Chinese release to earn the “AAA” designation, a title reserved for large, cost-intensive and successful games from leading companies. The majority of enthusiastic Wukong players are indeed from China. But it is a soft power success for China that people from all over the world are now becoming aware of the game on Steam – and thus also of the story of the Monkey King.
For a long time, Chinese games were considered inferior in the West or were limited to the mobile games sector. “Black Myth: Wukong” challenges this image and can potentially change it. It proves that China is not only a big consumer of games, but can also produce high-quality and culturally profound games.
“It’s not just a Chinese game for the Chinese market or the Chinese-speaking world”, Haiqing Yu, a professor at RMIT University in Australia, told the BBC. “Gamers around the world are playing a game that has a huge Chinese cultural factor.”
In China itself, the enthusiasm knows no bounds. Shortly after the launch of Wukong, the Ministry of Culture and Tourism of Shanxi Province, where many of the locations and backdrops shown in the game can be found, published a video of the attractions that are now experiencing a tourism boom. There is talk of “Wukong trips”.
However, there is a darker side to all this success. In the run-up to the release of “Black Myth”, some content creators and streamers revealed that a company affiliated with the developer had sent them a list of topics not to talk about during the game’s live streams.
These included “feminist propaganda, fetishization and other content that stimulates negative discussions”. Other topics marked as “taboo” in the document included politics, COVID-19 and China’s video game industry. The instruction caused controversy. Several streamers – both outside and inside China – decided to address these topics all the more. This led to some bans on social networks such as Weibo.
China’s nationalist newspaper Global Times immediately sensed an attack from the West. “Some Western media politicize every Chinese achievement, even Black Myth: Wukong”, read the headline of an editorial on Tuesday. Even if the Western media did not deny the global success of the game. There is often a “but “in their reports, wrote the Global Times.
However, the criticism of a lack of inclusivity was “a hasty judgment” by journalists who had only spent a few hours with the game. If they had played longer, they would see that female characters do appear over time. In any case, the game “does not have to live up to Western standards of political correctness”.
The majority of Wukong players probably didn’t notice much of the debate, and are more likely to be excited by the detailed graphics and diverse fighting skills the Monkey King has to offer.
Half-timbered houses, coziness, lots of nature: The small town of Bietigheim-Bissingen, which Alexander Pollich is turning his back on, is tranquil. Things will be less cozy for him in his new home in Shanghai. The pulse of global innovation beats there, and very quickly. From here, Pollich will take on a truly mammoth task on Sept. 1 – he is to lead Porsche out of the China crisis.
The 57-year-old CEO for Germany is taking up the most challenging post at the sports car manufacturer at the moment. He will become President and Managing Director of Porsche China, Hong Kong and Macao, succeeding Michael Kirsch, who has only held the post for just over two years. The situation is difficult. Porsche already sold 15 percent fewer vehicles in China in 2023, and there are signs of an even worse situation in 2024. Porsche recorded a third fewer sales in the first half of the year compared to the previous year – although China is the second most important market after the USA.
The fascination with the brand is still unbroken in China. Like everywhere else in the world, the 911 is a cult and status symbol. In addition to the icon, the Cayenne, Macan and Taycan are also well received. Do the poor figures indicate that the former appeal is being lost? Competition from domestic brands is growing; they may not score points with heritage, but they stand for innovative strength in the future fields of e-mobility and digitalization. And in case of doubt, they even offer their customers a little Porsche feeling by simply transferring the iconic design language to their own models, such as the Xiaomi SU7.
This is not Pollich’s first assignment in China. Although he has deep roots in southern Germany – A-levels in Stuttgart, bachelor’s degree in Stuttgart, MBA in Hohenheim, first job at the Boston Consulting Group, also in Stuttgart – the manager has always been drawn to faraway places. Pollich worked for the Boston Consulting Group in Australia for 18 months.
He then moved to Porsche 23 years ago, where he gained a deep insight into the company’s global business in various management positions and markets. One of his greatest strengths is sales. Pollich started as Head of Strategy and then became Vice President of Sales Network Management and Development. A position in which he was responsible for the development of the global dealer network and developed growth projects in various markets – including China.
In 2013, he moved to Canada as Market Manager and a few years later to the UK. In 2018, the manager was then appointed CEO of the German business. As the new head of China, Alexander Pollich must quickly get Porsche back on track for growth – in a market where all German manufacturers are currently suffering. To this end, he is to strengthen cooperation with local dealers and improve internal processes. Will that be enough? For Pollich, it is likely to be one of the biggest challenges of his career.
Green facades are considered climate-friendly and modern. These climbing plants, which are overgrowing a library at the university in Guiyang, Guizhou province, seem to have gone a little overboard. Teachers at the university planted more than 300 climbing plants 32 years ago, which now climb up the 12-story library building like a green castle. As beautiful as the façade looks from the outside, the lights are constantly on inside. And that, in turn, is less climate-friendly.
In its latest China report, the IMF has identified inconsistencies in the People’s Republic’s trade balance. There is more to this than just dry statistics – the discrepancies could have a major impact on the global economy, reports Marcel Grzanna.
This means that China artificially understates its trade surplus. The trick used is simple: Products that are manufactured in China for foreign companies but sold domestically appear as imports in the balance of payments. This disguises a surplus, while Chinese overcapacity continues to flood the global markets. This leads to a distortion of competition and, in the worst case, to a destabilization of international markets.
China often struggles with its soft power. On the one hand, it proudly points to its thousands of years of cultural history, but on the other, it imposes a corset on its artists, writers and filmmakers of the present day with rigid censorship that stifles creativity. A new video game could herald a turning point. Developed in Shenzhen and Hangzhou, “Black Myth: Wukong”, which revolves around the mythical monkey king Sun Wukong, triggered international hype shortly after its release thanks to its sophisticated graphics.
However, Jörn Petring reports that the game is not entirely without moderation and censorship. Content creators and streamers have apparently been given a list of topics that they should not talk about in connection with the game, including the characters’ gender balance, which is probably not very even. Western media are also being slammed in the Chinese state media, which allegedly want to immediately belittle every “Chinese achievement”.
It is only the appendix to an annual report, but it packs a punch. From page 101 in Appendix VII of the latest China report, the International Monetary Fund (IMF) makes it clear that there is something fishy about the current account surplus officially reported by Beijing. The IMF wonders about the growing difference between China’s balance of payments and customs data. To be more precise, China’s trade surplus appears to be significantly lower in the light of the balance of payments than the customs data would suggest.
What may sound like a trivial statistic is of great relevance. The trade surplus, which documents the imbalance between an economy’s imports and exports, provides information on the extent to which the People’s Republic unloads its excess manufactured industrial products abroad. The greater the surplus, the greater the quantity of goods that could be shipped abroad. Particularly in view of the international competitive pressure on European industry, the figures are important when assessing possible countermeasures.
According to US economist Brad Setser from the Council on Foreign Relations (CFR), the IMF report raises the question of whether China is manipulating the volume of its exported goods. Setser says that China is “basically running a trade deficit with itself.” To understand what he means by this, it helps to take a look at the creative method of Chinese calculation.
The trick works as follows: If a foreign company in China has its goods produced by a Chinese company and pays the producer for the order, the balance of payments registers this transfer as an export. However, the goods have never left the People’s Republic. This maneuver is called factory-less production.
This would all be understandable if foreign companies sold these goods outside of China, thereby effectively generating exports. In reality, however, these goods are sold within the country and then registered as imports by the Chinese authorities, even though they were produced domestically.
Because the products are sold to end customers in China at a significantly higher price (imports) than the Chinese producer collects from the foreign company for their manufacture (exports), these supposed imports generate a deficit in the balance of payments. This artificially reduces the volume of China’s trade surplus.
According to Setser, “a detailed examination of the data” shows that the Chinese balance of payments deviates from the customs data on both sides. This means that, on the one hand, the volume of exports according to the balance of payments is far below the volume of customs exports. On the other hand, imports according to the balance of payments are higher than imports according to customs, although they should be lower due to the adjustment of insurance and freight costs.
“The goods surplus in the balance of payments is now about $300 billion less than it should be in the balance of payments data. At no point is there a corresponding correction in the trade balance,” says Setser. According to official data, the trade surplus in China in the first six months amounted to US$434.9 billion. This would have meant an increase of around 8.6 percent compared to the previous year.
However, the questionable reliability of the data leads to the conclusion that Chinese overcapacity is instead flooding the global markets to a much greater extent than the official data would suggest. “And I firmly believe that the customs data – which captures actual trade – tells the story correctly, not the current account data fitted with a model (and an internal survey),” says Setser.
The economist also wonders how the decline in real estate investment by six percentage points of economic output can be reconciled with a decline in China’s current account surplus. Because, he argues, “the current account surplus is savings minus investment, and savings have not fallen by seven percentage points of GDP.”
The reason why no one has noticed this so far is probably due to the switch to an opaque methodology, which China now uses to collect financial data directly from large companies. Accordingly, more than 13,000 large companies report data on trade in goods, which accounts for around 70 percent of total trade in goods, directly to the authorities. For the rest of the companies, the compilers use cross-border receipts and payments in goods trade, which come from the International Transactions Reporting System.
The figures therefore suggest that the gap is significantly smaller and that concerns about growing Chinese overcapacity are therefore unjustified. After all, overcapacity is poison for other economies, which are suffering from a flood of Chinese goods at ridiculously low prices. “China ‘s overcapacity will become a global problem above all if it leads to a further increase in the trade surplus in industrial goods. According to the customs data, this was obviously the case,” says Jürgen Matthes from the Cologne Institute for Economic Research (IW).
Matthes considers it “highly problematic when China dubiously minimizes its trade surplus reported in the balance of payments because this indicator is often looked at even more frequently by analysts than the customs data.” It is therefore very important that we now have a better understanding of what exactly leads to the glaring and increasing differences.
An embellished Chinese balance sheet may also reduce the willingness elsewhere to take political countermeasures that are not in China’s interests. Take the EU, for example: Brussels has imposed countervailing duties to protect its own manufacturers from cheap competition from China. This makes exports – and therefore the reduction of overcapacity – much more difficult for Chinese manufacturers because demand is falling.
“If the development of the trade surplus in goods trade based on the customs data continues like this, China should not be surprised if more and more countries protect their markets against a flood of Chinese goods, which are also often directly and indirectly subsidized,” warns Matthes.
It is currently the number one topic of conversation among gamers: “Black Myth: Wukong” has made it to the top of the sales charts on Steam, the world’s best-known sales platform for computer games, in a very short space of time. This is particularly remarkable because it is the first time a Chinese game has managed to achieve such success.
Within 24 hours of its release, it broke the record for the most-played single-player game ever published on Steam. After three days, over ten million people had already bought the game.
“Black Myth: Wukong” is an action game developed by the Chinese company Game Science. Players take on the role of the “Chosen One” – an anthropomorphic monkey with supernatural powers. The character is based on Sun Wukong, the Monkey King, a central figure in “Journey to the West”, one of the most important works of Chinese literature. The novel draws deeply from Chinese mythology as well as Confucian, Taoist and Buddhist lore.
In August 2020, the developers first announced “Black Myth” with an online teaser that was shared millions of times. Fans then waited four years until its release last week. Experts agree that it is the first Chinese release to earn the “AAA” designation, a title reserved for large, cost-intensive and successful games from leading companies. The majority of enthusiastic Wukong players are indeed from China. But it is a soft power success for China that people from all over the world are now becoming aware of the game on Steam – and thus also of the story of the Monkey King.
For a long time, Chinese games were considered inferior in the West or were limited to the mobile games sector. “Black Myth: Wukong” challenges this image and can potentially change it. It proves that China is not only a big consumer of games, but can also produce high-quality and culturally profound games.
“It’s not just a Chinese game for the Chinese market or the Chinese-speaking world”, Haiqing Yu, a professor at RMIT University in Australia, told the BBC. “Gamers around the world are playing a game that has a huge Chinese cultural factor.”
In China itself, the enthusiasm knows no bounds. Shortly after the launch of Wukong, the Ministry of Culture and Tourism of Shanxi Province, where many of the locations and backdrops shown in the game can be found, published a video of the attractions that are now experiencing a tourism boom. There is talk of “Wukong trips”.
However, there is a darker side to all this success. In the run-up to the release of “Black Myth”, some content creators and streamers revealed that a company affiliated with the developer had sent them a list of topics not to talk about during the game’s live streams.
These included “feminist propaganda, fetishization and other content that stimulates negative discussions”. Other topics marked as “taboo” in the document included politics, COVID-19 and China’s video game industry. The instruction caused controversy. Several streamers – both outside and inside China – decided to address these topics all the more. This led to some bans on social networks such as Weibo.
China’s nationalist newspaper Global Times immediately sensed an attack from the West. “Some Western media politicize every Chinese achievement, even Black Myth: Wukong”, read the headline of an editorial on Tuesday. Even if the Western media did not deny the global success of the game. There is often a “but “in their reports, wrote the Global Times.
However, the criticism of a lack of inclusivity was “a hasty judgment” by journalists who had only spent a few hours with the game. If they had played longer, they would see that female characters do appear over time. In any case, the game “does not have to live up to Western standards of political correctness”.
The majority of Wukong players probably didn’t notice much of the debate, and are more likely to be excited by the detailed graphics and diverse fighting skills the Monkey King has to offer.
Half-timbered houses, coziness, lots of nature: The small town of Bietigheim-Bissingen, which Alexander Pollich is turning his back on, is tranquil. Things will be less cozy for him in his new home in Shanghai. The pulse of global innovation beats there, and very quickly. From here, Pollich will take on a truly mammoth task on Sept. 1 – he is to lead Porsche out of the China crisis.
The 57-year-old CEO for Germany is taking up the most challenging post at the sports car manufacturer at the moment. He will become President and Managing Director of Porsche China, Hong Kong and Macao, succeeding Michael Kirsch, who has only held the post for just over two years. The situation is difficult. Porsche already sold 15 percent fewer vehicles in China in 2023, and there are signs of an even worse situation in 2024. Porsche recorded a third fewer sales in the first half of the year compared to the previous year – although China is the second most important market after the USA.
The fascination with the brand is still unbroken in China. Like everywhere else in the world, the 911 is a cult and status symbol. In addition to the icon, the Cayenne, Macan and Taycan are also well received. Do the poor figures indicate that the former appeal is being lost? Competition from domestic brands is growing; they may not score points with heritage, but they stand for innovative strength in the future fields of e-mobility and digitalization. And in case of doubt, they even offer their customers a little Porsche feeling by simply transferring the iconic design language to their own models, such as the Xiaomi SU7.
This is not Pollich’s first assignment in China. Although he has deep roots in southern Germany – A-levels in Stuttgart, bachelor’s degree in Stuttgart, MBA in Hohenheim, first job at the Boston Consulting Group, also in Stuttgart – the manager has always been drawn to faraway places. Pollich worked for the Boston Consulting Group in Australia for 18 months.
He then moved to Porsche 23 years ago, where he gained a deep insight into the company’s global business in various management positions and markets. One of his greatest strengths is sales. Pollich started as Head of Strategy and then became Vice President of Sales Network Management and Development. A position in which he was responsible for the development of the global dealer network and developed growth projects in various markets – including China.
In 2013, he moved to Canada as Market Manager and a few years later to the UK. In 2018, the manager was then appointed CEO of the German business. As the new head of China, Alexander Pollich must quickly get Porsche back on track for growth – in a market where all German manufacturers are currently suffering. To this end, he is to strengthen cooperation with local dealers and improve internal processes. Will that be enough? For Pollich, it is likely to be one of the biggest challenges of his career.
Green facades are considered climate-friendly and modern. These climbing plants, which are overgrowing a library at the university in Guiyang, Guizhou province, seem to have gone a little overboard. Teachers at the university planted more than 300 climbing plants 32 years ago, which now climb up the 12-story library building like a green castle. As beautiful as the façade looks from the outside, the lights are constantly on inside. And that, in turn, is less climate-friendly.
