China still has far more more visible fx reserves than it has fx denominated external debt (let alone short-term external debt), and the smart money (I hope) knows that China has some hidden non-reserve assets too
A high M2 ratio is correlated with a big domestic banking system with lots domestic deposits -- a strength, not a weakness as far as I am concerned.
It also tends to correlate with current account surpluses not deficits
(and China still has controls too ... )
Everyone has their obsessions.
The right (and wrong) way to measure China's reserve adequacy is one of mine.
Reserves to M2 is wrong for China, and most of the world.
The enormous rise in the U.S. trade deficit, the deficit in August was over $200 billion larger than its 2019 average level, has made the U.S. the engine of global demand again ...
(the US current account is likely to be over a percentage point larger than the IMF's forecast)
Rather than shrinking, as the IMF argues, Asian imbalances are growing -- propelled by the rise in the U.S. deficit ...
In effect, strong U.S. demand allowed Asia to recover without doing all that much stimulus of its own (especially of household income)
The IMF has the U.S. current account deficit falling slightly in 2020 ...
Yet we know the deficit rose by almost 1.5 pp of GDP in the second quarter, and the third quarter looks like the second quarter not the first
And the U.S. trade deficit has increased at an incredibly rapid pace in the last few months, and, in dollar terms, is now (more or less) back at its pre-global financial crisis level
Even with the unusually strong (and unlikely to be sustained) September rise in imports, the y/y rise in China's manufacturing surplus in the third quarter looks to be around $150b (~1% of China's GDP)
1/x
That's in line with biggest (in dollar terms) y/y rises before COVID-19 --
But it is striking because it comes at a time when overall trade is down
2/x
I think with hindsight there is a case that China's manufacturing surplus has been on an upswing since 2016 (i.e. after the big CNY depreciation), though the impact of the tariffs masked that upswing in 2019
(and some will argue that 2020 is a one off ...)
3/x
China's contribution to global growth is at least in part a function of whether it imports more than it exports.
And right now China is exporting more to the world (i.e. drawing on trading partners demand to support its growth) than it is importing
2/x
The common notion that China's export boom is a function of PPE exports and increased demand for laptops to work from home understates the breadth of China's export recovery ...
The overall trade surplus (goods only, but the services balance is hugely distorted by Ireland) is almost back to its pre COVID-19 shock levels
That tho misleads, as lower oil imports offset a much lower non-petrol surplus
1/x
Excluding oil, overall goods trade hadn't fully recovered in August (Europe here differs from China)
2/x
Euro area imports from China have returned to more or less normal (after a huge spike in May, no doubt linked to medical supplies). But China is clearly doing better at selling to Europe than the EA's other trading partners (relative outperformance remains)
I worry that the IMF's agenda this fall is far less ambitious than the current shock demands.
One way of framing this point is that the IMF so far has provided less financing to limit the impact the impact of COVID-19 on the world than it provided to Argentina alone.
1/x
Another way of framing the issue is that the bulk of the IMF's balance sheet is sitting unused -- and there doesn't seem to be much of a plan to bring it to bear to held vulnerable countries finance higher levels of spending in the crisis.
2/x
The IMF has funds to cover the world's maturing sovereign hard currency bonds many times over. There isn't a systemic crisis from hard currency EM debt lurking just over the horizon. So the IMF could do more to help a broader set of countries meet current fiscal needs
3/x