CHINAMacroReporter

China's trade surplus up, RMB weaker

[China markets update with TRACK's Bob Savage ] 'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.
by

Bob Savage | Track.com

|

CHINADebate

February 8, 2018
China's trade surplus up,  RMB weaker

February 8: China market moves 

TRADE

In January,

  • China's trade surplus fell to $20 billion from $50 billion, year-on-year, and
  • Imports skyrocketed 35 %, year-on-year, shocking market watchers.

RMB

The RMB ell over 1% today.

  • The most it's traded off since August of 2015 devaluation.

And the RMB has been trading below 6.30 now for over a week, even traded briefly at 6.25 

  • 'Many see 6.20 and 6.25 as very important levels because that's the August of 2015 devaluation - from there you had the  August 2015 2% devaluation that unsettled world markets,' according to Bob Savage of TRACK.

Why the weakening? Three reasons, Bob says: 

  1. 'The RMB did not like the trade data at all, and it weakened immediately.'
  2. 'The news overnight that HNA had a technical default.
  • 'The lenders to HNA - Deutsche Bank being probably one of the largest - were immediately under the scope.'
  • 'Deutsche Bank shares were hit overnight, and the euro was hit because the banking sector in Europe was under the gun.'

'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.

Specifically:

  1. China's falling trade surplus and
  2. The Renminbi's weakening on the trade news and on the news of HNA's credit technical default.

Part one: trade

'There's an obsession with watching what goes on withChinese trade. China trade is a barometer for global demand for goods. Anychange in that trade balance is an indication that something's changing there.'

'And, China's falling trade surplus shocked people. InJanuary, China's trade surplus fell to $20 billion from $50 billion, andimports skyrocketed 35 %, year-on-year. There are two explanations for it.'

 'First is the more boring seasonal effect of the ChineseLunar New Year holiday, where people realize they'll need goods over Februaryand March but that they're going to be on holiday for a lot of February -  so, they better just get the stuff in in January.Some of the imported goods came that way.'

  • Interestingly, 'a lot of theses imports are in commoditiesand, strangely enough, that just means that Chinese inventory holdings ofcommodity goods went up.'
  • That turned commodities prices bearish today. 'People sawthat the Chinese bought a lot of commodities in January, and it means thatthey're not going to buy a lot in February or probably March as they draw downthose inventories.'

Second - and more important in the long run for its potential impact on China's current account - is this.

  • 'Overall there's been a 3-1/2% appreciation of the RMB against the dollar.' That's made imports cheaper.
  • 'And guess what the Chinese did? They imported more goods, because they felt richer.'
  • 'Now, the United States knows a lot about how when you make consumers feel richer with cheaper imports: they import more goods and the trade deficit gets worse.'
  • Why is this important? 'China wants to stoke domestic demand,' to become a consumer-driven economy.
  • But it succeeds, this 'has an implication for whether or not China continues to be a current account surplus country.'
  • If China is 'truly successful in creating domestic consumer demand - like that in Europe, Japan and the United States - then, it's probably going to start running a current account deficit, unless it actually targets trade.' 

1. Part one: why China's trade surplus is down

Image
‍I said trade surplus, not 'Trading Places'

'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.

Specifically:

China's falling trade surplus andThe Renminbi's weakening on the trade news and on the news of HNA's credit technical default.

Part one: trade

'There's an obsession with watching what goes on with Chinese trade. China trade is a barometer for global demand for goods. Any change in that trade balance is an indication that something's changing there.'

'And, China's falling trade surplus shocked people. In January, China's trade surplus fell to $20 billion from $50 billion, and imports skyrocketed 35 %, year-on-year. There are two explanations for it.'

'First is the more boring seasonal effect of the Chinese Lunar New Year holiday, where people realize they'll need goods over February and March but that they're going to be on holiday for a lot of February -  so, they better just get the stuff in in January. Some of the imported goods came that way.'

Interestingly, 'a lot of theses imports are in commodities and, strangely enough, that just means that Chinese inventory holdings of commodity goods went up.'That turned commodities prices bearish today. 'People saw that the Chinese bought a lot of commodities in January, and it means that they're not going to buy a lot in February or probably March as they draw down those inventories.'

Second - and more important in the long run for its potential impact on China's current account - is this.

'Overall there's been a 3-1/2% appreciation of the RMB against the dollar.' That's made imports cheaper.'And guess what the Chinese did? They imported more goods, because they felt richer.''Now, the United States knows a lot about how when you make consumers feel richer with cheaper imports: they import more goods and the trade deficit gets worse.'Why is this important? 'China wants to stoke domestic demand,' to become a consumer-driven economy. But it succeeds, this 'has an implication for whether or not China continues to be a current account surplus country.'If China is 'truly successful in creating domestic consumer demand - like that in Europe, Japan and the United States - then, it's probably going to start running a current account deficit, unless it actually targets trade.' 

2. Part 2: how far will will the RMB weaken?

Image

'Part two is about the Renminbi today and is the more important story today.'

'The RMB did not like the trade data at all, and it weakened immediately, falling more than 1% -  even though the official rate setting China does every morning suggested that the RMB would, instead, be slightly stronger today.'

'This is the most it's traded off since August of 2015. There are two other reasons for this, besides the trade numbers.'

'First, the news overnight that HNA had had a technical default.'

'The lenders to HNA - Deutsche Bank being probably one of the largest - were immediately under the scope.' Deutsche Bank shares were hit overnight, and the euro was hit because the banking sector in Europe was under the gun.'

Second, the Chinese were looking at where the renmimbi has traded - it's been below 6.30 now for over a week, and it looked like yesterday it was trading at 6.25 for a brief shining moment.'

'This is important because many see 6.20 and 6.25 as very critical levels.'Why? 'Because that's the August 2015 devaluation level -  and from there you had the 2% devaluation that unsettled the world.''It is also important because that's the also level where many thought that Chinese export competitiveness was under threat by a too strong RMB.'

'So, after the trade number and after the HNA default, which is emphasizes the need for cheap money for the rollover debt, the issue is that RMB weakness is now putting in a floor below 6.30 -  that something the market is going to really watch closely.'

'And, if we think that the RMB could go to 6.40 or 6.50 again, then that has implications for the rest of the foreign exchange world, particularly Korea and Europe.'

What to watch for. 'Today was an exciting day. I'm paying a lot of attention to see if 630 is the new bottom for the dollar-RMB relationship, and to see if there's going to be more concern about:

'Higher interest rates, and 'Debt rollover of some of the more leveraged corporations in China.'

More

CHINAMacroReporter

February 7, 2021
The 'Longer Telegram' & Its Discontents
Why everyone wants to be George Kennan‘In 1947 X penned his history-changing “Sources of Soviet Conduct” in Foreign Affairs,’ wrote Edward Luce in the Financial Times in 2018.‘The piece, which crystallised America’s cold war containment strategy, was the making of George F Kennan’s life-long reputation as a master of geopolitics.’‘ As the architect of a doctrine that won the cold war.’
keep reading
February 7, 2021
'Brookings experts analyze President Biden’s first foreign policy speech: Focus China'
'To respond effectively, Biden argued, America will need to rebuild leverage, e.g., by pursuing domestic renewal, investing in alliances, reestablishing U.S. leadership on the world stage, and restoring American authority in advocating for universal values.'
keep reading
February 7, 2021
'Why the ‘Longer Telegram’ Won’t Solve the China Challenge'
‘Perhaps the most problematic aspect of the 'Longer Telegram's' emphasis on Xi—“All U.S. political and policy responses to China therefore should be focused through the principal lens of Xi himself”—is the author’s conclusion that Washington should be seeking to escape from, and even try to effect the removal of, Xi’s leadership because that could restore U.S.-China relations to a potentially constructive path: “its pre-2013 path—i.e., the pre-Xi strategic status quo.” ’
keep reading
August 24, 2023
Xi Jinping: 'The East is Rising' | Yes. Rising against China
All our careful analyses of PLA capabilities, the parsing of Mr. Xi’s and Mr. Biden’s statements, the predictions as to the year of the invasion, everything – all out the window. This is one you won’t see coming – but one you have to have prepared for.
keep reading
July 23, 2023
‘The U.S. Has Tactics, But No China Strategy’ | Bill Zarit
‘The U.S. needs national review of outward investment to China, but it has to be narrow and targeted and done in conjunction with our allies and partners.’
keep reading
July 10, 2023
‘Is Xi Coup-proof?’ (after the march on Moscow, I have to ask)
What about the guys without guns? So if Mr. Xi doesn’t face a rogue army or a military coup… How about a coup by Party elites?
keep reading
April 2, 2023
Xi Jinping: 'Change unseen for a 100 years is coming.'
Time went of joint in the mid-1800s when China began its ‘Century of Humiliation.’ And Mr. Xi, with a sense of destiny, seems to feel he was born to set it right. (I very much doubt that Mr. Xi would add: ‘O cursed spite’ – he seems to relish his role and the shot it gives him to go down in history as China’s greatest ruler.)
keep reading
January 2, 2023
Xi Jinping: Bad Emperor?
Some have asked me what will be the greatest risk to China in the next five years. My answer: That Xi Jinping will overstep and enact policies that Chinese people won’t accept, especially those that have a direct impact on their lives and livelihoods.
keep reading
November 22, 2022
'Strangling with an intent to kill.’
I began to have some hope of getting our act together with Mr. Biden. He worked to rebuild relations with allies who could join the U.S. in the competition. And he understood the need for America to strengthen itself for competition. Hence, the infrastructure, CHIPS, and other acts. But whether Mr. Trump or Mr. Biden, one thing nagged me beyond all the rest. Why is America strengthening our competitor? — In the instant case: Why is America giving our competitor advanced semiconductor resources to strengthen itself to compete against us?
keep reading
October 31, 2022
Xi's China: 'less reliable, less predictable, and less efficient'
‘China’s predictability is being eroded by the frequent, erratic policy shifts that have taken place in recent months, such as the unexpected disruptions to power supplies that took place in 2021, and the sudden mass lockdowns that were imposed in an attempt to contain COVID.'
keep reading
October 18, 2022
Xi Jinping: ‘Crossing a threshold to outright dictatorship?’'
The view from inside China appears to be quite different. Yes, the Chinese people may grumble about the Zero-COVID lockdowns, and just a few days a banner critical of Mr. Xi and his regime was unveiled over an overpass in Beijing.
keep reading
October 10, 2022
The 20th Party Congress with All Eyes are on Xi Jinping
The attention to Mr. Xi is in large part because he will exit the Party Congress with even greater power, no discernible opposition, and a new five-year term (with more likely to follow). And many of the constraints that may have been in place not to jeopardize his reappointment will be gone.
keep reading
September 26, 2022
China Coup: How Worried Should Xi Be?
‘Xi and the phrase #ChinaCoup trended on social media after tens of thousands of users spread unconfirmed rumors that the president was detained and overthrown by the China's People's Liberation Army.’
keep reading
September 18, 2022
'How do you spy on China?'
Many of you have asked about my own take on the issues I analyze in these pages and about my background. Today is some of both.I am honored to have been interviewed by the terrific Jeremy Goldkorn, editor-in-chief of The China Project. Below is part of that interview.
keep reading
September 5, 2022
Xi’s Dangerous Radical Secrecy
In a world of political hardball, investigative reporting, and tabloids, we know a lot (if not always accurate or unspun) about world leaders, especially those in functioning democracies. Not so with Xi Jinping.
keep reading
July 10, 2022
Building Biden's 'Great Wall' Around China
Whether you view it as an aggressive adversary or a nation asserting itself in ways commensurate with its rising status, China is creating risks – some subtle, some obvious - that, along with reactions of the U.S. and its allies, have to be factored, into every related business, investment, and policy strategy.
keep reading
July 1, 2022
A Debt Crisis of its Own Making
Ever since Xi Jinping announced ‘One Belt, One Road’ in 2013, I watched it expand China’s economic and geopolitical influence and lay the foundation for projecting its military power – and become by many accounts an exploiter of the developing world itself.
keep reading
June 22, 2022
No. Ukraine Won't Change Xi's Plans - or Timetable - for Taiwan
Ukraine won't speed up or delay Mr. Xi's timetable. (But it may cause him to work harder to strengthen China's military and insulate its economy from external pressure.)
keep reading
June 12, 2022
'The competitiveness of China is eroding.'
Understanding the drivers of China’s rise to supply chain prominence gives (me anyway) insights to help analyze the changes – or not – of ‘decoupling.’
keep reading
June 5, 2022
U.S.-China Relations: A Chinese Perspective
Wang Jisi notes that the views are his own, and certainly we don’t know how closely, if at all, they reflect the thinking of anyone in the leadership. But given his straightforward and thorough analysis, free of canned arguments and slogans, I hope they do. I also hope the Biden administration pays heed.
keep reading
May 30, 2022
Is Xi Jinping China's Biggest Problem?
And while the impact of Zero Covid may be relatively short-lived, the impact of Mr. Xi’s return to the socialist path will be felt for a very long time, both in China and the world. So the impact will no doubt be felt as long as Mr. Xi leads China.
keep reading
May 22, 2022
The Next U.S.-China Crisis: CEOs & Boards Are Not Ready
‘The bad news is that very few corporations engaged in China have contingency plans or long-term strategies to hedge against the downside risks of growing geopolitical competition.’
keep reading
May 14, 2022
China GDP: 'A very long period of Japan-style low growth.’
Here are some of the insights from ‘The Only Five Paths China’s Economy Can Follow’ by Peking University’s Michael Pettis. This excellent analysis of China’s economy is worth a careful reading.
keep reading
May 1, 2022
'Zero Covid' & the Shanghai lockdown
Joerg Wuttke is the president of the EU Chamber of Commerce in China - the 'official voice of European business in China.'
keep reading
April 17, 2022
Is China's Tech 'Crackdown' Really Over?
Today, I’m sharing with you a bit of Ms. Schaefer’s analysis of the tech ‘crackdown’ (but not of the AI and algorithm law). She explains why...
keep reading
April 17, 2022
China: 'Sleep Walking into Sanctions?'
A looming risk is Russia-like sanctions on China. The sanctions on Russia are causing plenty of disruptions. But those disruptions would be nothing compared to the catastrophe of Russia-like sanctions on China. The good news is that if China does violate the sanctions, the violations would likely be narrow and specific - even unintentional. So secondary sanctions - if they come at all - likely won't hit China’s economy and financial system deeply – or (fingers crossed) U.S.-China relations.
keep reading
April 5, 2022
Russian Sanctions' Impact on China
In the meantime, some contend, China has a payment system, the Cross-Border Interbank Payment System or CIPS, that could make it independent of SWIFT.
keep reading
March 21, 2022
Faint Cracks
For some time now we’ve taken it for granted that Xi Jinping has so consolidated his power that his will is China policy.
keep reading
March 13, 2022
Is China in a Bind?
It wants to support Russia, but also wants to support the international order from which benefits and doesn’t want to alienate the major economies its own economy is intertwined with.
keep reading
February 19, 2022
Under Construction: Two (Opposing) World Orders
Years ago, before the so-called ‘New Cold War,’ when asked what China issue interested me most, I said, ‘China and the liberal world order.’
keep reading
February 17, 2022
'A Fateful Error'
As the 1904 cartoon from Puck magazine shows, this isn’t the first time in the past 100 or so years that Russia has shattered the peace. [Or has been defeated, as it was in 1905 by the Japanese in the Russo-Japanese War.]
keep reading
February 2, 2022
Ukraine, Taiwan, & the 'Nightmare Scenario'
This in no way diminishes the calamity of a war with China. But the ability of the U.S. to wage that war would not be diminished by having to fight Russia at the same time.
keep reading
January 18, 2022
This is Mr. Xi's Big Year - and Nothing Better Spoil It
Every politician going into an election wants a strong economy. Xi Jinping is aiming to be reelected (and all indications are he will be) to a third five-year term at the National Party Congress this autumn. So Mr. Xi will ease (and stimulate ) as much as he can without creating major headaches to deal with after his reelection - all in the name of 'stability.'
keep reading
January 5, 2022
Bachelors, Mother-in-Laws, & China's Economy
‘In the long-term, demographics is one of the most important forces that will shape the growth momentum of China for the next decades. Two demographic features that are especially worth paying attention:’
keep reading
December 30, 2021
Q&A 6 | China Reverse Its Declining Birthrate?
‘A lot of people feel like the ideal, the optimum number of children is a maximum of two children. So it's not a surprise to me that the three-child policy hasn’t had a high response in the short term. But I think in the long term it will be much better.’
keep reading
December 30, 2021
Shang-jin Wei Presentation-1 | Drivers of Growth Momentum
‘In the last year and a half we saw a spate of government actions all contributed to not just falling stock prices for companies in certain sectors but a deterioration in investor sentiment more broadly. These include:...’
keep reading
December 30, 2021
Q&A 1 | How Much Does the Gender Imbalance Contribute to China’s Rising Housing Prices?
‘Gender imbalance accounts for about one-third of the increase in China’s housing prices in the last two decades or so.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.