It is pretty clear that the U.S. tax reform had a large impact on the U.S. BoP data: FDI flows reversed in 2019, as U.S. firms brought back past investments).
But it also may be mucking around with the global data. The fall in inward FDI to the EA correlates with US tax reform
The fit isn't perfect -- the EA data indicates that investment from the US fell off before the tax reform, and I don't understand the mechanism why investment from others into the EA would fall with the US tax reform
the BoP math is sort of straight-forward:
the "reinvested" (tax deferred) earnings of US firms used to count as an increase in US FDI abroad. So when those funds are returned, US outward FDI falls.
and conversely inward FDI into places like the EA and Bermuda should fall
basically, tax avoidance under the old U.S. law led to a buildup of US FDI abroad (technically), and that is now reversing.
Some will say this is globalization going backwards, but in a real sense it is not ...
in any case, help understanding the EA data would be most appreciated -- outward EA FDI has also gone done it seems, so the net swing is more modest that the change in gross flows over the last 6qs
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FX settlement data for March shows the first sign of significant pressure on the yuan -- roughly $30b in fx sales in settlement. Contrasts with $7b rise in in balance sheet fx reserves
Settlement v balance sheet gap is big.
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The settlement v PBOC balance sheet gap (which should correspond in theory to fx sales from the state banks) is also large in the trailing 12m (captures activity over the last year)
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of course, being China, the relevant data doesn't quite line up -- the state commercial banks foreign asset position (assets net of liabilities) was flat in March
A lot of political reporting still casually equates the interest of (German) business operating in China with the interest of the Germany economy. Politico for example ...
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The same applies to arguments that link Tesla's production in China and its exports from China to the success of the US economy (as opposed to a US company). The confusion isn't limited to Germany
I was expecting a bit more from the Politico article I guess, because China is really now challenging the German economy in ways that no state visit can paper over.
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I was worried last night that China might change its fx regime before I finished my assessment of China's policy over the last 6ms. But I need not have worried.
The so called "market determined" fix stayed constant last night, and tonight (US time)
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The blog though is about more than just how to describe Chinese fx policy.
I also argue that considerations of external balance need to get more weight in consensus international advice to China (proxied by the IMF's article IV)
"A distinctive feature of purchase subsidies for BEV in China, however, is that they are paid out directly to manufacturers rather than consumers and they are paid only for electric vehicles produced in China, thereby discriminating against imported cars”
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In wing, China's industrial policy was carried out via local content requirements for firms that wanted to sell turbines for projects that connected to the State Grid (an off budget subsidy)
Personally find it sort of amusing that Liao Min (representing the CCP) cites two " @ business " (note the irony) stories -- including one whose headline I thought didn't fairly represent the underlying data.
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My read of the Tom Hancock story that China's government apparently likes is that the details don't actually support the headline