Share this page!

Brad Setser Profile picture
Twitter logo
23 Oct, 4 tweets, 2 min read
September's FX settlement data (settlement includes the PBOC and the state banks) provides the first obvious sign of renewed intervention -- settlement, adjusted for forwards, jumped $10b in September

1/x Image
A reminder -- China historically has needed to intervene more when the yuan is appreciating than when it is stable or falling (as controlling the pace of appreciation takes the PBOC's balance sheet)

2/x Image
To be sure the $10b in purchases in the settlement data in September is only visible purchase in the traditional intervention proxies in the last 3ms, and it remains is modest v the $150b plus trade and bond inflow -- there is more going on

3/x Image
As @M_C_Klein highlighted in Barrons there has been rapid growth in the net foreign assets of the state banks over the last 5ms of data (roughly $20b a month in q3).

More here --

cfr.org/blog/chasing-s…

4/4

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Brad Setser

Brad Setser Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Brad_Setser

Brad Setser Profile picture
25 Oct
Fair summary of the data on the impact of Trump's China tariffs by @bobdavis187 and @JoshZumbrun.

1/x
wsj.com/articles/china…
Has some interesting color on polysilicon (used in solar PVs) as well. Apparently the Chinese tariff on polysilicon wasn't lifted in the phase one deal.

And, well, China is hard market once China targets a given sector

2/x Image
There are some measures on the agricultural side that if sustained should raise US exports (approval of pork and beef exports, rolling back retaliatory tariffs on chicken parts). But always has a bit unclear (imo) how the phase one deal would raise exports of manufactures

3/x
Read 9 tweets
Brad Setser Profile picture
22 Oct
I continue to be surprised by the number of people who think the bulk of China's external bank lending has been funded out of China's reported reserves, and thus the reserves aren't liquid.

The balance of payments actually shows substantial non-reserve foreign assets.

1/2
I guess the BoP could be a complete fabrication, but if it is at all accurate, the external loans of Chinese state banks (and their bond purchases) are additional assets that should be added on top of China's reserves (not subtractions from China's reserves)

2/2
p.s. China does have liabilities too -

but the BoP implies that they are still much smaller than China's external assets

(as one would expect given China's long history of current account surpluses)
Read 4 tweets
Brad Setser Profile picture
21 Oct
The rapid increase in the U.S. current account account should be hard to miss.

Yet the IMF missed it, throwing off its global forecast

cfr.org/blog/chinas-su…
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)
Read 6 tweets
Brad Setser Profile picture
21 Oct
False analogy.

Asian pegs collapsed back in 1997 because external short-term fx debts exceeded reserves, not because of high m2 to reserves.

I (literally) wrote a book about it

Chinese fx reserves still far exceed its external debt, let alone its short-term external debt
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 ... )
Read 4 tweets
Brad Setser Profile picture
21 Oct
I was not impressed by the IMF's analysis of the global balance of payments in the October WEO.

It clearly gets the world's two biggest national economies wrong.

cfr.org/blog/chinas-su…
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
Read 7 tweets
Brad Setser Profile picture
20 Oct
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
Read 6 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get email notifications when new thread is out from this Author!

Check out other threads from this Author!

Read all threads by @Brad_Setser