Forcing a country to borrow from the private market at 11% should never be the result of an IMF policy -- if this really was done as a financing assurance, those financing assurances need to be rethought

(h/t @murtazahsyed)

1/x

profit.pakistantoday.com.pk/2024/09/14/gov… The purpose of financing assurances is to assure the IMF that existing creditors won't pull money off the table (am thinking of say the Chinese policy banks) during the program, not to get a country to raise funds at any cost

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tribune.com.pk/story/2495989/…

I very much welcome the IMF's new attention to China's customs goods balance -- though the emphasis should be on the light blue (customs) line not the balance of payments line

1/x In order for the IMF's macro view to be correct, the rise in the domestic savings rate in China and the fall in property investment in China needs to translate into a rise in the external surplus - which as this chart shows, is only true if the IMF uses the customs data

2/x

An old source of trade tension is poised to reemerge --

Chinese steel, going to Europe (the US market is more walled off)

1/ There doesn't appear to be any easy solution -- China's real estate contraction should lead to sustained fall in underlying Chinese demand, so China can only sustain over 50% of global steel output by exporting on a truly massive scale

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I gather the IMF's Sri Lanka debt sustainability analysis has emerged as a bit of a political issue in Sri Lanka --

A few observations, from one of the first critics of the IMF's analysis/ numbers.

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https://twitter.com/UmeshMoramudali/status/1829813487998320923

The first observation is that the IMF's parameters for Sri Lanka (the limit on the gross financing need and the fx financing need, the 105-110% debt to GDP target in 28 and the 95% debt to GDP target in 2032) are upper limits --

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Me, in the pink paper, arguing that (fx) intervention can work even for the big G-10 currency pairs --

ft.com/content/8b1976… Not the standard argument I know (the FT leaders team, the Economist, the WSJ, the IMF and others have made the opposite argument), but one where I have a fair amount of conviction --and one where the market currently supports my argument

The chart that ought to keep the IMF up at night

(it suggests that the thesis of their flagship report on the global balance of payments is off, and trade imbalances did not, in fact, recede)

1/ Another chart that should fill the IMF with a bit of existential angst --

how is a 6 pp of GDP fall in real estate investment compatible with a fall in China's current account surplus?

(the current is savings minus investment, and saving hasn't fallen by 7 pp of GDP)

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A question for the China hands.

How much longer can China sustain its current pace of manufacturing investment? EVs aren't profitable if you are not BYD, steel industry needs to shrink, PVs are oversupplied?

1/ In nominal yuan terms, infrastructure investment (typically funded by LGFVs) has offset the fall in real estate investment ...

so the increase in investment is more less all in manufacturing (led by autos ... )

2/

Superb story by @wsj_douglasj and @Lingling_Wei of the WSJ.

China's pivot to exports (and a growth model based on rising surpluses given China's ongoing reluctance to import) was a conscious policy choice

1/ Some great charts to accompany the story of how and why China's economy pivoted back to an old growth model based on the export of manufactures (admittedly with a focus on new cutting edge sectors)

2/

China has reduced its reported external surplus by $300 billion by replacing the customs data with data from ... a domestic survey of Chinese firms.

No wonder the reported current account surplus makes no economic sense.

1/

cfr.org/blog/chinas-im… Paragraph 7 of Appendix VII of the IMF staff report shows why it is important to follow footnotes, & to interpret data critically -- China told the IMF it stopped using the customs data to calculate its goods surplus back in 2022!

Yep. Stopped. Using. Customs.

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It is almost impossible to describe how "weird" China's q2 balance of payments data is --

The basic balance (the current account plus FDI) turned really negative (-30b) for the first time, despite a $190b customs goods and services surplus

That should not happen!

1/ The basic balance (the current account plus FDI) over the last 4qs is now more or less zero even with a $600b goods and services surplus, and record big manufacturing surpluses ...

That also should not happen

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IMF: global trade imbalances are receding

Global goods trade: hold my beer

(Goods trade is only well measured part of the global current account) My hunch was that the global goods data would more or less confirm China's customs data ... and call into question the adjustment that China now makes to get its current account numbers.

The gap between China's customs surplus (measured at the order, verifiable based on counterparty data) and its BoP goods surplus in q2 (now based on an internal survey, not verifiable) was almost $90b in q2 alone

1/x The Customs v BoP goods gap over the last 4qs is $250b -- and rising ....

2/

Enjoyed the Foreign Affairs article of my colleague @ZongyuanZoeLiu exploring the structural causes of China's tendency to over-invest in the production of physical goods, and its deep bias toward saving and against consumption

1/x

foreignaffairs.com/china/chinas-r… Very much agree with her assessment of China's internal coordination problem:

"the fundamental coordination problem plaguing the Chinese economy: the duplication of local government investments in state-designated priority sectors."

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A thread on China's July trade data -- and why the IMF needs to use the customs data and not China's made up BoP number!

The July number was actually stronger than reported. I estimate export volume growth was 11-12%

1/ That only seems modest because the June number was crazy. A 16-17% y/y increase. Export prices are down 5% y/y right now, so a stable trade surplus in dollar terms ($860b or so) means a growing "real" surplus ...

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There is a lot of confusion about the role Japan has played in the global fixed income market.

This is the key chart to understand in my view.

There actually hasn't been a net outflow from Japan -- but the gross flow matters.

1/x Here are cumulative Japanese purchases of foreign bonds from 2010 -- between 2010 and early 2021, Japanese institutional investors bout about $1.4 trillion in bonds, so a bit less than $150b a year on average.

But the flow reversed in 2022 -- with a modest rebound after

2/

The yen's recent move was largely a reaction to the weak US jobs number and changes in US rates -- it was made in the US as much as in Japan.

But will still take the other side of this debate; Japan should have nipped the carry trade in the bud back in April, and intervened at 152 ... Back in the spring many in the market were expecting Japan to defend the yen around 150 (as it had done in late 2022) -- allowing the yen to fall further fueled the use of the yen as a funding currency over the last 4-5ms

I have sometimes joked that Apple is Europe's leading tech company, an Irish giant that subcontracts R&D from California and manufacturing from Taiwan (chips) and China (everything other than chips ... )

https://twitter.com/mattyglesias/status/1817944007676178631

Apple "became" an Irish company (for tax purposes) in 2015, entering into Irish (and thus euro area) GDP and shaping the euro area's balance of payments ...

It is a seminal event in modern Irish history ...

Useful (corporate) tax facts:

After the Tax Cuts and Jobs Act, Apple has consistently paid more tax outside the US (mostly in Ireland) than inside the US. It pays ~ $5b to the Treasury on its over $100b profit

1/ Apple's offshore profit (so taxed in the first instance abroad, Apple is Ireland's largest tax paper) is around $70b, or more than the combined offshore profit of the top 6 US pharma companies. That's impressive --

2/

EU auto exports to China really haven't grown since 2014 --

And the idea that the German business model is based on exporting to China not the US really needs to be updated.

1/

https://twitter.com/MichaelAArouet/status/1817101882222936370

I at least find this chart interesting: German exports to China haven't actually changed much as a share of German GDP since 2011 (and are now falling fast). The notion that Chinese demand drove the German export machine is 10ys out of date

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The tax strategies of big US pharma companies are all pretty similar. Big US tech companies have more varied strategies - but still book too many profits in low tax jurisdictions abroad to ignore.

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cfr.org/blog/spotty-in… There are a set of US technology companies that did return the profits on their offshored intellectual property to the United States to take advantage of the low Foreign Derived Intangible Income (FDII) rate (13.125%).

2/

In 2023, the eight largest US pharmaceutical companies
collectively did not pay ANY US corporate income tax.

Time for a real "America first" corporate income tax reform, one where big American companies actually pay a bit of income tax in the US

1/ Why the big "zero" when the US income tax paid by "Big Pharma" is summed up?

Simple. Despite charging high prices in the US and generating the bulk of their revenue in the US, Big Pharma claims (in their corporate disclosure) to be losing money in the US

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