Share this page!

Enter URL or ID to Unroll

You can paste full URL like: https://x.com/threadreaderapp/status/1644127596119195649
or just the ID like: 1644127596119195649

How to get URL link on X (Twitter) App

  1. On the Twitter thread, click on or icon on the bottom
  2. Click again on or Share Via icon
  3. Click on Copy Link to Tweet
  4. Paste it above and click "Unroll Thread"!
  5. More info at Twitter Help
Brad Setser Profile picture
@Brad_Setser
Nov 22 • 5 tweets • 2 min read Twitter logo Read on Twitter
China has a ton of reserves -- including a growing share of high yielding US agencies. And China's state banks have lent a ton to the world, generally in dollars and at a floating rate. China's investment income could be soaring ...

1/ Image
I constructed a model of China's income balance in the balance of payments. China doesn't provide a breakdown of either interest or dividend payments, so I applied an assumed rate of return to the disclosed stocks.

2/ Image
I was able to get a good fit with the disclosed data on outbound payments (with an assumed return of 8% on FDI in China).

But the fit on China's assets broke down recently ...

3/ Image
Global rates are a lot higher today than 2018, but China's income receipts are lower -- which doesn't really make sense. Matt Klein noticed the same gap as well

4/
theovershoot.co/p/the-threat-f…
reported investment income is now about $200 billion below model estimates -- and the discrepancy has been increasing --

5/ Image

• • •

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
Nov 22
Interesting point by Clemens, in a good thread.

I think tho the actual dynamic at play is even more complicated.

China isn't represented among the bond holders, but it is well represented among commercial creditors

1/
Remember that China has 2 big international policy banks -- Exim and CDB, and 4-5 big state owned "commercial" banks active internationally.

China defined the CDB to be a commercial creditor, along with its "commercial" state commercial banks.

2/
This isn't just an academic point -- China Exim has just over $4b in exposure to Zambia, while the commercial bank creditors (mostly China!) have $3b in exposure ... and much of China's exposure to Sri Lanka is via the CDB's fiscal support loans (couple billion ... )

3/
Read 20 tweets
Brad Setser Profile picture
Nov 15
The obvious solution to this dilemma is for China to rely on fiscal easing to support its economy -- backed with quantitative rather than price based monetary and credit easing as needed.
I did a fairly technical blog on this topic (directed in part the IMF, which is pushing a shift toward price based monetary policy transmission at the wrong time imo) a few weeks ago ... when it was a bit lost amid all bond market noise

cfr.org/blog/can-china…
China has more scope than most to hold its currency stable v the dollar with domestic interest rates below US rates:

-- it generates fx from its massive goods surplus;
-- has enormous fx reserves (and another $1 trillion or so in the state banks;
-- it has real capital controls
Read 4 tweets
Brad Setser Profile picture
Nov 8
There is a lot of interest in foreign demand for US Treasuries (and US bonds generally) these days, given the scale of forthcoming issuance.

And in aggregate foreign demand for US bonds has actually been pretty strong, in line or above the post global crisis norm

1/ Image
the higher frequency data from the Fed (and now the Treasury) based on the valuation adjusted monthly survey data tells the same story -- solid overall demand, with a modest shift toward Agencies in the last 12ms

2/ Image
Treasury demand appears to be coming largely from private investors -- which makes sense given that reserve growth has been weak and Treasuries offer an absolute yield pickup.

China on net has sold Treasuries in the last 12ms of data even adjusting for Belgium/euroclear

3/ Image
Read 8 tweets
Brad Setser Profile picture
Nov 3
China's current account surplus is disappearing. At least in the Chinese data.

I know the negative print on FDI will get all the attention, but the $500b gap between the $850b goods surplus and the $350b CA surplus matters even more.

1/x Image
$200b of the $500b gap can be explained by China's services trade deficit (mostly tourism/ travel).

But the gap between customs goods and BoP goods accounts for an even bigger share of the gap, and that gap makes NO SENSE

2/ Image
this gap is very new and now very big. And (per @adamkwolfe and others) it has no apparent foundation. The IMF really should not take China's current account surplus as face value until China clears this up

3/ Image
Read 6 tweets
Brad Setser Profile picture
Nov 3
Is Japan's the world's largest net creditor?

It actually is complicated. Japan holds a ton of foreign bonds. But the world holds a ton of zero yielding JGBs too. The net sum isn't that big.

and yes, this is confusing ...

1/ Image
Japan has run persistent current account surpluses, and Japan has a hugely positive net international investment position and it generates a ton of income (interest and dividends from its foreign holdings)

2/ Image
but what isn't well understood (and hell, I didn't understand it ten years ago) is that Japan's net international investment position is all FDI and reserves, not private holdings of foreign bonds. that should be clear from the cumulative BoP

3/ Image
Read 7 tweets
Brad Setser Profile picture
Nov 3
Think lots of folks are worried about the cart well after the horse has left the barn.

Japan stopped buying foreign bonds in size about 8 quarters ago ...

1/
Japan went from a very large net buyer in 2020 to a very large net seller in 2022 --

It has basically been flat in 2023. Some purchases but nothing like the past. Image
What is still not well understood is that the bulk of the Japanese flow was a hedged flow, and they key to the hedged flow was the fact that the US curve was much steeper than the Japanese curve.

3/
Read 14 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

Don't want to be a Premium member but still want to support us?

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

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

Send Email!

:(