China's net flow of goods and services, or its current account surplus, shrank 32 percent this year to June as the global recession clamped down on exports for the world's third largest economy.

It is the first decline in the nation's current account surplus since 2004.

Current account surplus is the difference between a nation's sum of exports of goods, services and gifts between countries, and its total imports.

The surplus dropped to US$130 billion in the first half of this year from US$191 billion in the same period of 2008, according to preliminary data released yesterday by the State Administration of Foreign Exchange (SAFE).

The capital and financial account surplus also shrank to US$33 billion in the first half of 2009, SAFE said. The decline came largely as net direct investment fell 50 percent in the first half year-on-year.

China's trade surplus is decreasing, especially in terms of percentage of gross domestic product (GDP), said Stephen Green, head of China research at Standard Chartered Bank in Shanghai.

The country's trade surplus fell to 4.4 percent of GDP in the second quarter from 8.4 percent in the first quarter of this year.

"Obviously, this is a combined result of the sharp drop in China's export and a moderate drop in imports as a result of slowing global growth," said Zhuang Jian, senior economist with the Asian Development Bank.

According to the Customs data released on Tuesday, from January to July, China's foreign trade fell by 22.7 percent from a year earlier to US$1.15 trillion, including exports and imports of US$627.1 billion and US$519.6 billion.

Olivier Blanchard, chief economist of International Monetary Fund, said on Wednesday that a decrease in China's current account surplus would help rebalance international trade and thus sustain the global recovery.

"From the United States' point of view, a decrease in China's current account surplus would help increase demand and sustain the US recovery. That would result in more US imports, which would help sustain world recovery," Blanchard said.

A narrowing balance of payment surplus may ease revaluation pressure on the nation's currency, the economist said. The Chinese yuan has stopped appreciating for more than a year after rising 21 percent since a peg against the dollar was scrapped in July 2005.

Zhuang believes the global recession has given China a great opportunity to upgrade its industries.

"China has achieved great success in bolstering the economy's growth through a series of plans to stimulate it, but it should also continue making efforts to upgrade its industries, as well as its energy-saving and pollution reduction measures, to sustain development," Zhuang said.

(China Daily August 21, 2009)