Chinese domestic auto sales remained weak in June. EV sales are now right at 12m cars (over the last 12ms). ICE sales have dipped below 10m

1/ 22m in domestic sales and ~ 55m in capacity.

Michael Dunne

"this year China has capacity to build about 55 million cars. Their domestic demand is 25 million. They’ll export another 10 million that leaves 15 to 20 million in excess capacity idle"

2/

latitudemedia.com/news/catalyst-…

Sometimes you just have to admire how strange the world can be -- Korea's May current account surplus was over $38 billion or $450 billion annualized

Absolutely massive number, the trailing 12m sum hasn't yet caught up

1/ What's more, the massive surplus was offset by massive equity outflows. Primarily foreigners selling Korean equities (presumably to avoid concentration limits ...)

2/

Happy to review the evidence that some of China's exchange rate management results in change to the balance sheet of the state financial sector -- not just changes to the PBOC's formal reserves.

I also have covered this extensively on my blog

1/

https://twitter.com/YanLian31677392/status/2074413970547503121

The most important evidence is that fx settlement -- which historically has been an intervention variable (and purchases and sales still correlate with how spot trades inside the band) is no longer showing up on the PBOC's balance sheet (Black and red lines have diverged)

2/

Very much agree with @adam_tooze --

The most important thing to know about the international financial system right now is that the dollar's share of a global equity market index is higher than the dollar's share of official fx reserves

1/

https://twitter.com/fteconomics/status/2074139550503297077

One manifestation of the "profit dollar" and a global financial system built around the hope that US will deliver exceptional returns (not safety or necessarily liquidity): an unusual share of the US external deficit has been funded by return seeking flows

2/

A good point from the Economist

"This economic logic is flawed—China is suffering a property bust similar to Japan’s all on its own, without Plaza-like constraints"

1/ Despite the protests from the Global Times and its echo chamber on this and other sites, I am a bit more optimistic about the possibility that China may agree to allow the CNY to appreciate than the Economist

2/

economist.com/finance-and-ec…

Adam Tooze has highlighted work from the CF40 that attributes the shift in China's trade balance with Germany entirely to autos. Using the Chinese data I get a different result (autos are big, but only ~ 1/3 the change)

1/ The detailed data shows that most of China's surplus categories (let by electronics -- a broad category that includes phones and car batteries and chips) are growing, while most of Germany's surplus categories are shrinking. Machinery flipped into a deficit last year

2/

This is absurd -- and profoundly wrong. It is useful tho as a guide to the position that China appears to be taking.

There are three obvious errors embedded inside it tho

1/

https://twitter.com/LAURENTMICHEL0N/status/2071924728755843421

The first error is that it is an unreasonable ask from uncompetitive economies. That uncompetitiveness is a function in part of price, and China is the one actively intervening in the market to hold the yuan down. the settlement numbers should this clearly

2/

Trade diplomats the world over tend not to be the best macroeconomist --

"It [Chinese state media] said Chinese companies were no longer as concerned about the European market because they now had options such as south-east Asia or the Middle East."

1/ As the FT notes, China's surplus with SE Asia is a derivative of US tariffs/ low cost assembly of components in SE Asia ... basically it is a reflection of US demand

2/

Excellent essay. No doubt one of the defining features of the China shock has been how it has reallocated the global surplus.

The old exportweltmeister has been dethroned -- and China has world scale in advanced manufacturing, which is new and disruptive

1/

https://twitter.com/adam_tooze/status/2071204022070255802

The jump in China's surplus since the start of 2024 is actually understated in dollar terms -- as Chinese export prices have fallen/ volume metrics show a bigger rise. But there has been a huge shift since 2018

2/

I gather that in the eyes of some of the leader writers at the Economist the collapse of German exports to China (down a pp of German GDP led by autos) doesn't have anything to do with today's announced layoffs at VW ...

1/ It is quite clear in the data that Europe's auto exports to China tanked over the course of 2024 and 2025, and imports from China soared in 25 ...

2/

Ut oh. The Economist is at risk of making the mistake the IMF made in the 2025 External Sector Report and not looking through the headline current account numbers ...

1/
The Economist leader makes the mistakes I argued that the IMF makes -- thinking that the full current account presents a better picture than customs goods (when in fact the services numbers and income numbers are distorted heavily by Ireland on the European side)

2/

economist.com/leaders/2026/0…

I see that the pre global financial crisis Chinese fears about "Plaza" (meaning a negotiations that results in a coordinated currency appreciation to reduce imbalances and trade tensions) hasn't disappeared ...

Fair enough -- call a deal Shanghai accord ...

1/ The name doesn't really matter. And if China doesn't see value in an agreement that tries to raise the value of all the big Asian currencies together and wants to get points at home for rejecting a "plaza" and instead chooses to appreciate I certainly won't complain

2/

As @Aligarciaherrer has already observed, May's data shows ongoing domestic weakness (even increasing domestic weakness) even as China's exports continue to outperform global trade. It is an explosive combination.

1/

https://twitter.com/FT/status/2066750309570093095

The retail sales numbers speak for themselves -- tho there is a goods v services distinction, and the rolloff of some of last year's incentives for durables purchases matters.

The investment numbers also aren't good

2/

Korea's won is incredibly weak (global financial crisis or Korean BoP crisis levels ... ) even though Korea's fundamentals are sound (BoP has a massive surplus, fiscal debt is modest, etc).

Will be interesting to see if the Koreans can mount a defense this week ...

1/ A bit of background: Korea is experiencing a massive, positive terms of trade shock (chip prices are up so much that it has overwhelmed the rise in price of oil) and Samsung and Hynix are generating massive profits that have pushed the KOPSI way up

2/

A new blog, on a big topic -- the scale of state driven outflows from China (one might say intervention)

Probably not the easiest read. But hey, I need to prove that BoP based analytics & human intelligence can still compete with the machine god

1/

cfr.org/articles/scali… For a few months now I have been hearing from folks close to the PBOC that the outflow from the state banks was driven by fx deposit growth, not by backdoor intervention. The blog takes that argument VERY seriously

2/

The argument that China has a comparative advantage at industrial policy is a bit like the argument that the US has a comparative advantage at exporting debt. It is a good line, but even quips need a limiting principle ...

1/ I am not sure this week's Free Lunch column came up with that limiting principle; the notion that "the west might be better off simply leveraging the benefits of Chinese scale" suggests getting out of China's way across the board

2/

ft.com/content/42fc2e…

Germany's goods and services surplus has collapsed, and its surplus is now down to 2.5% of its GDP -- about half the level of China's far larger economy

1/

https://twitter.com/tonyannett/status/2057595969374478708

Germany unlike China does report that its accumulated surpluses have generated an investment income surplus -- and China's reported deficit by all accounts (even that of the IMF, which grades China on a very generous curve) makes no sense

2/

I wanted to highlight this chart, as it is the chart that best illustrates why the available data points to active Chinese state management of the exchange rate. it shows that there is a predictable pattern to fx settlement --

1/ When spot is at the weak edge of the 2% band defined by the PBOC's daily fix, there are predictably sales in settlement (someone is defending the band) and when spot is at the midpoint, there are predictably purchases (esp. when the fix is appreciating)

2/

Handelsblatt has -- on its front page -- an article summarizing my new paper with Sander Tordoir on Germany's need to find policies to actually fight back against the second China shock

handelsblatt.com/politik/deutsc…

1/ x.com/CER_EU/status/… China's industrial structure -- as the ECB and others have noted -- increasingly overlaps with that of Germany ... with autos being the most obvious case.

And the China shock there won't go away on its own; Chinese auto export growth accelerated in the last 12ms

2/

The net foreign asset position of China's state banks (in both dollars and RMB) is now $1.5 trillion -- a rather big sum (close to 1/2 China's formal reserves, a sum bigger than Japan's reserves ... )

1/ many These are mostly funds that the state commercial banks have raised domestically (whether from real deposits, from "fake" deposits from SoEs helping out the PBOC, or swaps with PBOC). Total foreign assets are $1.7 trillion v $200b of external liabilities

2/

China's auto sector is a near-perfect metaphor for China's economy -- domestic demand is down, quite significantly. But exports are on a rocket ship up -- vehicle exports should come close to reaching 12m this year, car exports 10-11m

1/ Domestic demand for both ICEs and EVs is now shrinking -- and 22m cars, it falls well short of absorbing China's massive auto capacity (widely estimated to be over 50m)

2/