The IMF does some great work and the latest China Article V has a lot to admire (as usual).
But I am a bit confused about some of the BoP analysis and I think others may be too?
=Thread
@GeneralTheorist @GagnonMacro @Brad_Setser @jturek18 @michaelxpettis @M_C_Klein
But I am a bit confused about some of the BoP analysis and I think others may be too?
=Thread
@GeneralTheorist @GagnonMacro @Brad_Setser @jturek18 @michaelxpettis @M_C_Klein
I will address some of this in more detail in a forthcoming Substack (moneyinsideout.exantedata.com), but there are basically two points I want to make:
One: China is on course for its largest current account surplus in more than a decade. For 2020 my current estimate stands at about $332bn. & its held down by Q120.
On top, China has seen a surge in foreign bond inflows in 2020. My current estimate stands at ~$170bn...
On top, China has seen a surge in foreign bond inflows in 2020. My current estimate stands at ~$170bn...
If you add up all the other relatively easily observable flows you get a surplus of ~$400bn in 2020.
But the mystery remains: Where/from whom is the offsetting outflow?
PBOC intervention has been basically non-existent...
So where has that $400bn gone...?
But the mystery remains: Where/from whom is the offsetting outflow?
PBOC intervention has been basically non-existent...
So where has that $400bn gone...?
Two: Enter the IMF. BoP surveillance is at the core of the Fund's mission so I eagerly look forward to their takes on these issues.
But they kind of punted on the topic this time. They project a CA surplus of 1.9% of GDP ($285bn)...
A little low maybe, but fine...
But they kind of punted on the topic this time. They project a CA surplus of 1.9% of GDP ($285bn)...
A little low maybe, but fine...
..they say in footnote 13 they'll return to the topic in the 2021 External Sector Report (can't wait!).
They also note that FX intervention by the PBOC has been "limited."
We agree.
But then, what about that $400bn? Where is the discussion of that...?
...Crickets...
They also note that FX intervention by the PBOC has been "limited."
We agree.
But then, what about that $400bn? Where is the discussion of that...?
...Crickets...
Then you turn to the BoP table and find: They have FX reserves increasing by 2.4% of GDP ($360bn) in 2020!?!?
What's more, they have FX reserves rising by $1.5tn over the next 5 years!?!
What's more, they have FX reserves rising by $1.5tn over the next 5 years!?!
Now, I get it, typically reserves are treated as a sort of residual/balancing item in the BoP (which looks to be the case here), but for a country of this magnitude and a topic of this importance, I expect more from the Fund as the premier international financial institution?
And if you are going to say there is no FX intervention offsetting this massive surplus, maybe either:
a.) dedicate some space to explaining where the $400 has gone?
b.) Don't just throw it all in the reserves line of the BoP table?
/End
a.) dedicate some space to explaining where the $400 has gone?
b.) Don't just throw it all in the reserves line of the BoP table?
/End
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