The Treasury has indicated that it will look at the activities of China's state banks in its next assessment of China's currency policies--

It is hard to see how this doesn't become a bit of an issue ... unless of course summitry gets in the way of analysis 1/ It is quite clear that state bank purchases (and in 23/ early 24 sales) of fx have replaced PBOC purchases and sales and the core technique China uses to manage the band around the daily fx -- i.e. settlement looks like an intervention variable

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A new blog on China's hidden fx intervention, which reached staggering scale in December 2025

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cfr.org/articles/the-p… The blog is detailed and technical -- and thus probably best read by those with a real interest in central bank balance sheets, the balance of payments and how to assess backdoor foreign currency intervention

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Obviously overshadowed by the news about a Fed nomination, but the Treasury released its delated October 2025 FX report today and it is worth reading -- not the least b/c of a clear warning to SAFE.

1/ This seems clear

"An economy that fails to publish intervention data or whose data are incomplete will not be given any benefit of the doubt in Treasury’s assessment of intervention practices."

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home.treasury.gov/news/press-rel…

Can a country artificially weaken its currency by changing how it regulates its life insurance industry?

I think the answer is yes.

A new blog, one certain to increase my popularity with the Central Bank of China (Taipei)

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cfr.org/articles/taiwa… A bit of background. Taiwan's lifers hold $700 billion in foreign currency assets abroad (more counting their holdings of local ETFs that invest heavily in foreign bonds) v ~ $200 billion in domestic fx policies -- so fx gap (pre hedging) of $500 billion

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Japan is an interesting case in a lot of ways. It has a ton of domestic debt (and significant domestic financial assets) which generates heated concerns about its solvency/ ability to manage higher rates. But it is also a massive global creditor --

1/ Japan's net holdings of bonds (net of foreign holdings of JGBs) is close to 50% of its GDP (a creditor position as big v GDP as the US net det position). That includes $1 trillion in bonds held in Japan's $1.175 trillion in reserves, + over $2 trillion in other holdings

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More pressure to export?

Monthly exports of passenger cars increased from a 6m cars a year pace to 10m car a year pace over the course of 2025 ...

Project that would at exports will reach 14m cars at the end of next year!

https://twitter.com/Richard_Casey/status/2014628745022185826

14m cars would be roughly 1/4th of the global market for cars outside China (the Chinese market is ~ 25m cars) ... no way that doesn't have a disruptive impact.

China would go from 6 to 14m cars in a two year period if 2025 isn't an outlier ...

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For some reason I decided to look at the external financial of investments of the main Scandinavian countries in a bit more depth --

Big surpluses, and tend to split the outflow equally between bonds and stocks

1/ For the big 3 collectively, portfolio flows map well to the current account surplus -- which is a common outcome now that there is less intermediation via the central bank. Denmark's portfolio flows tho are now a bit smaller than its accumulated surplus

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China's premier says China wants to be a market for the world, not just a source of supply.

He might want to get get started.

China exported over 7m passenger cars in 2025, and the pace of growth accelerated at the end of the year

1/ many Passenger car imports are down to half a million, and falling fast ... no market for the world there

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The technicals around the long-end of the Japanese curve are difficult: the natural buyers are all underwater on their legacy holdings, making it a hedge fund playground.

I tho would love to hear a good explanation of the fiscal concerns, gross debt isn't the only metric

1/ Maybe the IMF's data is off, but it has the general government deficit in 2025 at under 2 pp pf GDP (way better than the US) and it likely would be ~ 2% of GDP even with Takaichi's 0.7 pp of GDP(?) stimulus

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Gonna push back against my friends* at FT alphaville just a bit.

The countries that have backed the Danes most strongly (and the Danes themselves) are the surplus countries of Europe & they have generally have a ton of public sector financial assets

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ft.com/content/beeaf8… The Dutch are a good example; massive public sector pension funds. Sweden isn't that different. Denmark has big public investors (Norway is all Norges Bank obvly)

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The fall in China's real estate investment -- which can still be mapped to objective indicators -- if anything accelerated toward the end of 2025 ...

1/many . @KeithBradsher covered this well is the Times' story on China's 5% (shock, shock) reported growth in 2025 ... which understandably (being non-news) got overshadowed by the real news over Trump's Greenland/ peace prize obsession

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nytimes.com/2026/01/18/bus…

The IMF, and others (the French?), should start tracking the customs based global goods imbalance.

Tis striking. China stands out. Followed by Korea and Taiwan (the NIEs). And Ireland of course (pharma)

1/ many In a sane world of course the US should care about this -- but Trump is already taking credit for the (irrelevant) fall in the bilateral deficit with China, and seems poised to focus his trade policy (ha!) on the non-Ireland EU and Canada ...

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A reminder for armchair geostrategists trying to game out a trade war -- a massive fraction of EU exports to the US are in the pharmaceutical sector. That is mostly US firms producing for the US in Ireland for tax reasons ...

1/ About half the US trade deficit with Europe/ the European surplus with the US (~ $100b) is trade in tax (i.e. pharmaceutical trade). Ex Pharma, the EU now exports ~ $400b to the US and imports ~ $300b. Big numbers, no doubt, but materially less than if pharma is included

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The Scandinavian countries collectively hold ~ $2 trillion in US assets, with most in the hands of their public sectors. The Dutch another $600-700b ...

h/t @ExanteData

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https://twitter.com/EtraAlex/status/2012699377186312609

A portion of those are hedged (apart from the Norges holdings) but hedging doesn't offer protection in the event of a full fledged financial war (which I certainly hope can be avoided)

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Woah Nellie ...

China, via its state banks, bought a record $118 billion of fx in the market (counting forward purchases) in December.

A new record. Game on

1/ Some obvious reasons for the spike, which maps to ongoing reports of SCB purchases in November:

A massive trade surplus creates underlying potential for big inflows;
and exporters tend to convert FX into CNY (forcing the banks or the PBOC to buy fx) when the CNY is rising

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A few words on China's demand for US assets (or the last of visible demand for US assets) based on the q3 BoP data. The old rule of thumb was bond inflows equal to China's surplus. The new rule of thumb is no flows and no correlation ...

1/ Even adjusting for Euroclear (part owned by the PBOC incidentally) and short-term holdings, there is no visible net flow from China into the US bond market over the last 8 years ...

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The April ("liberation day") tariffs prompted a brief wobble in the financial markets. The August tariffs didn't -- and that is reflected in the capital flow data in the BoP, which shows solid bond inflows into the US in q3

1/ The balance of payments data doesn't provide any detail on hedging -- but the total flow into US bonds has been pretty stable at a $600-700b annual pace. And (net) inflows into US equities have been unusually strong (and equity flows typically are not hedged)

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Very strong December for China's auto exports. Vehicle exports for the month were close to 1 million -- and I estimate passenger car exports will come in at 850K for the month, or a 10m annualized pace

1/ The export numbers are so big that they obscure the fall in imports -- but that has also been impressive.

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How did China manage to raise its (customs) trade surplus by $200b to close to $1.2 trillion (and by more in volume terms) even amid the US trade war?

Well, part of the answer is a big rise in its surplus with Europe

1/ China's total surplus with Europe, in dollar terms, topped the pandemic surplus ... as Europe's exports to China have stalled and China's export to Europe keep on rising ...

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A new blog, on the challenges China now faces as it manages renewed pressure on its currency to appreciate

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cfr.org/blog/chinas-cu… I of course think that China should allow its currency to appreciate -- the yuan is absolutely very weak (see the PPP comparisons) and, in real terms, it is about as it weak as it has been in the last 15 years while China's trade surplus is at an all time high

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Taiwan's surplus is going through the bloody roof

$15b in December works out to $175b a year annualized
the surplus in 2024 was already large -- yet it was "only" around $50b

AI bubble or not, that is a ton cash

1/ for the year, Taiwan's surplus will more than double -- from ~ $50b to over $100b. and the q4 surplus annualized is WAY higher, at around $175b. That is a crazy number for a country that already had a bit external surplus and has a lot of investment income

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