Goldman Sachs: China’s Q1 2026 Current Account Surplus Narrows, Yet RMB Outlook Remains Positive

Overview

This report analyzes preliminary Q1 2026 data for China’s balance of payments (BOP). The key conclusion is that although the current account surplus narrowed compared to Q4 2025, it remains fundamentally robust; meanwhile, the pace of net outflows in the capital and financial account slowed, driving a substantial increase in foreign exchange reserves. Based on this, Goldman Sachs has upgraded its 2026 forecasts for Chinese import and export volumes and expects further improvement in the broad-based balance of payments (BBOP) for the full year, thereby sustaining its structural bullish stance on the RMB.

Core views

The current account surplus narrowed seasonally but remains structurally sound. In Q1 2026, China’s current account surplus totaled USD 184 billion, representing 3.8% of GDP (unadjusted), down from 4.5% in Q4 2025. On a seasonally adjusted basis, the surplus as a share of GDP declined from 4.3% to 3.9%. This change was primarily driven by a seasonal decline in the goods trade surplus and a modest widening of the services trade deficit, while outflows from income and current transfers decreased relative to the previous quarter. Capital outflow pressure eased, leading to a sharp accumulation of foreign exchange reserves. The capital and financial account (including net errors and omissions) showed a slower pace of net outflows in Q1. Direct investment recorded a net outflow of USD 10 billion, compared to a net inflow of USD 6 billion in Q4 2025. Although SAFE’s net foreign exchange receipts from securities investment declined — suggesting securities investment may have turned into larger net outflows — total reserve assets rose by USD 48 billion in Q1, far exceeding the USD 6 billion increase in Q4 2025. Notably, headline foreign exchange reserves rose by only USD 7 billion, implying a negative valuation effect of approximately USD 41 billion (e.g., accounting for losses due to exchange rate or asset price movements). Upgraded full-year trade forecasts support continued RMB bullishness. Looking ahead to full-year 2026, Goldman Sachs raised its forecasts for Chinese goods export and import volumes from 5.3% and 1.5%, respectively, to 7.2% and 6.8%, and also revised upward its forecasts for export and import price growth (mainly driven by higher energy prices). Against this backdrop, the goods trade surplus is expected to decline marginally to 4.8% of GDP in 2026 (from 5.4% in 2025); combined with the services trade deficit, the full-year current account surplus is projected to moderate to 3.4% of GDP. However, given expectations of smaller net securities outflows than in 2025 and stable direct investment flows, the broad-based balance of payments (BBOP) is projected to rise from 1.2% of GDP in 2025 to 1.8% in 2026 — providing fundamental support for the RMB.

Analysis framework

The report employs a standard balance-of-payments analytical framework, decomposing cross-border capital flows into three dimensions: the current account, the capital and financial account, and changes in reserve assets — tracking each component sequentially. By comparing quarter-on-quarter changes (e.g., shifts in surplus as a share of GDP) and year-on-year trends, the report identifies seasonal patterns in trade surpluses and structural shifts in capital flows. Additionally, it isolates valuation effects by comparing the difference between ‘changes in reserve assets’ (from the BOP statement) and ‘headline foreign exchange reserve changes’ (from central bank data), enabling more accurate assessment of underlying real capital inflows and outflows. Finally, micro-level BOP components are aggregated into the broad-based balance of payments (BBOP) indicator, used as the core metric for assessing medium- to long-term exchange rate trends.

Methodology notes

• Macroeconomic framework

  Broad-Based Balance of Payments (BBOP) Analysis

  BBOP is a comprehensive indicator measuring the overall direction of cross-border capital flows for a country, typically encompassing the current account, direct investment, and portfolio investment. The report posits that BBOP improvement signals an increase in net external capital inflows and constitutes a key fundamental driver supporting the domestic currency’s exchange rate.

• Macroeconomic framework

  Valuation Effect Adjustment for Foreign Exchange Reserves

  Changes in the book value of foreign exchange reserves reflect not only actual capital transactions but also valuation impacts from exchange rate fluctuations and asset price changes. By comparing the central bank’s reported foreign exchange reserve change with the reserve asset change reported in the balance of payments, one can estimate the magnitude of valuation effects and thus reconstruct the true direction and scale of underlying capital flows.

Key data

• Q1 2026 Current Account SurplusUSD 184 billion (3.8% of GDP)Down from 4.5% in Q4 2025
• Q1 2026 Net Direct Investment OutflowUSD 10 billionCompared to a net inflow of USD 6 billion in Q4 2025
• Q1 2026 Reserve Asset IncreaseUSD 48 billionMarkedly higher than USD 6 billion in Q4 2025
• Q1 2026 FX Reserve Valuation EffectApprox. -USD 41 billionDerived from the difference between USD 48 billion reserve asset increase and USD 7 billion headline FX reserve increase
• 2026 Export Volume Growth Forecast7.2%Raised from prior forecast of 5.3%
• 2026 Import Volume Growth Forecast6.8%Raised from prior forecast of 1.5%
• 2026 Broad-Based Balance of Payments (BBOP) Forecast1.8% of GDPUp from 1.2% in 2025

Impact & implications

The report concludes that although the current account surplus declined temporarily due to seasonal factors, China’s external accounts remain fundamentally healthy overall. Slowing capital outflows and the anticipated improvement in the broad-based balance of payments offset the marginal narrowing of the trade surplus. This macro backdrop supports Goldman Sachs’ constructive (bullish) view on the RMB, implying relatively limited external depreciation pressure on the currency over the medium term — and potentially even appreciation support should capital inflows recover.

What to watch

• Detailed breakdowns of securities investment and other investment data, scheduled for release at end-June
• Further impact of energy price developments on import/export prices and the trade surplus
• Continuity of trends in foreign direct investment (FDI) inflows and outflows