1/8
Important article by @endacurran, although I'm a little surprised that it's taken so long for the mainstream foreign press to address this story. The article notes that there has been an acceleration in recent years...

bloomberg.com/news/articles/…
2/8
in foreign inflows into China through the trade and financial accounts, but unlike in the past, "when China aggressively recycled its dollar holdings into U.S. Treasuries, China’s giant pile of foreign exchange reserves are holding broadly stable."
3/8
"That means the dollars are being funneled somewhere else," the article suggests, "but exactly where is proving to be a bit of a mystery."
4/8
Perhaps not such a mystery, although this is a sensitive enough topic that it is almost impossible to get confirmation. PBoC reserves have been broadly steady (except for valuation changes) since 2017.
5/8
You wouldn't know this however from watching the currency, which has been fairly steady. But how is that possible if the central bank doesn't intervene? Could someone else be intervening?
6/8
Perhaps. It turns out that instead of a rise in PBoC reserves we've seen an equivalent rise in the net external position of Chinese banks, to well over $1 trillion the last time I looked.
7/8
This has been especially weird in the past two years, when the combination of much higher RMB interest rates and a rising currency made borrowing RMB to fund an FX position incredibly painful. Why would Chinese banks do this?
8/8
And yet as foreign inflows accelerated (in part precisely to take advantage of the high returns on net RMB positions), the accumulation of net FX positions by Chinese banks accelerated in line with foreign inflows. There must be a reason, right?

• • •

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

Keep Current with Michael Pettis

Michael Pettis 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 @michaelxpettis

7 Nov
1/4
In October, for the seventh month in a row, Chinese exports grew by more than consensus expectations (27%), and imports by less (21%), for a staggering $84.5 billion trade surplus in October.
scmp.com/economy/china-… via @SCMPNews
2/4
Consensus expectations were for a surplus a little below last month's $66.8 billion. This is China's biggest monthly trade surplus in the past four years (for which I have monthly data) and probably the biggest China has ever recorded, equal to a whopping 5.8% of China's GDP.
3/4
The trade surplus year to date is equal to roughly 3.6% of China's GDP. The fact that the trade surplus has risen every month since March would have been much less of a surprise to most analysts if they had recognized that the weak recovery of household income and...
Read 4 tweets
7 Nov
1/12
Sorry for another long post but I’ve had several responses to this thread arguing that this cannot apply to Germany because German wages are higher than those of most of their trade partners. That may be true in absolute terms, but what matters is relative wages.
2/12
For example absolute German wages may be higher than absolute Spanish wages, but so is German productivity, and if the difference in their wages is less than the difference in productivity, then German wages are relatively lower than those of Spain.
3/12
Consider the case in which Spanish manufacturers can produce 100 widgets while paying €80 in wages, whereas German manufacturers can produce 100 widgets while paying €70 in wages. In that case the wage share in Germany is lower than that in Spain, and if...
Read 12 tweets
6 Nov
1/15
There is a lot of good stuff in this article and in the paper to which it refers, but I worry that there is a conceptual confusion that may affect our attitudes towards trade. The problem with the “China shock” is not that there was a lot of...
npr.org/sections/money…
2/15
offshoring which drove manufacturing jobs to China. That is just how trade works, both internally and internationally: jobs move to where they can be done more productively, and in so doing raise demand, which results in jobs lost being replaced by other jobs.
3/15
But key to a well-functioning trading system is that growing Chinese exports be balanced by growing Chinese imports. That happens when increased Chinese exports to the US raise Chinese household income levels commensurately.
Read 15 tweets
5 Nov
The U.S. trade deficit widened in September to a record $80.9 billion, driven by climbing demand for capital goods like computers and electric equipment and industrial supplies. wsj.com/articles/u-s-t… via @WSJ
2/12
“The trade deficit is being driven wider,” they say, “by shifting patterns of demand for the raw materials and inputs for American factories and retailers.”

But while this (circular) reasoning might have been less mistaken many decades ago, it simply isn’t true today.
3/12
Consider that changes in the trade deficit (or, more correctly, the current account deficit) are perfectly matched by opposite changes in the capital account surplus. If the US capital account consisted mainly of trade finance, and it was only the trade finance component...
Read 12 tweets
5 Nov
1/5
According to Charlie Munger, China "steps on a boom in the middle of it instead of waiting for the big bust".

I've heard other people say similar things, and it strikes me as more than a little US- or Euro-centric.
cnn.com/2021/11/03/bus…
2/5
It is hard to argue that Beijing has stepped in early to crush the bubble – even assuming that this time is real and they will not quickly ease off in the next few weeks and months.
3/5
Chinese real estate may have already been in a bubble at the time of the 2008 Olympics, and certainly Chinese regulators have worried about this for several years, but didn't know how to resolve it without causing more short-term damage than they found politically acceptable.
Read 5 tweets
4 Nov
1/4
"On Monday, a furnishings supplier said that it had received property from Evergrande to offset about 39 million yuan overdue IOUs from the company. A property broker also said that it had received flats worth 253 million yuan in lieu of payment."
scmp.com/business/compa…
2/4
Like the many other suppliers, contractors and service providers that are receiving apartments rather than cash in payment for their services to Evergrande, these two will almost certainly need cash to pay their workers and suppliers.
3/4
This means they must either sell the apartments quickly or borrow against them and sell a little later in a more orderly fashion. Either way should make prospective buyers even more reluctant to buy into these projects except at a substantial discount.
Read 4 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!

:(