As always, China's detailed balance of payments data is worth parsing -- in part because China's surplus is big ($800b annualized in q3) and in part because the financial account confuses most of the world (China isn't adding to its reserves anymore) ...

1/many Let's start with the current account -- $200b or so in q3. That is still a bit smaller than it should be. But it is has jumped from an implausibly low $50b a quarter in late 23 and early 24 to a number that is much closer to reality.

2/

Looks like Japan's Ministry of Finance is getting ready to realize some of its massive profits, selling dollars bought at 80-100 at well over 150 ... and in the process reducing Japan's debt (Japan carries its reserves on the MoF's balance sheet)

1/ Rate differentials (at least at certain tenors) are more yen supportive than in the past, which bolsters the case for intervention --

2/

Little Belgium is in the news right now, and not entirely for the best of reasons.* But judging from the US TIC data, Belgium doesn't have much to worry about

*Belgian politics seem to have been captured by a custodian, which is a bit strange --

1/ For what it is worth, nothing much showed up in the OCtober TIC data, foreign private and foreign official holdings were more or less flat

2/

Since the big move in the Taiwan dollar in May, "Taiwan’s life insurers ... have cut their currency hedging to a record low" and resumed buying foreign bonds ...

Not exactly the response expected!

1/ So how could the lifers cut their hedges just after taking big losses on their unhedged positions in May?

Tis a good question ...

2/

Korean won incredibly weak right now -- at risk of overshooting fundamentals. US return exceptionalism has generated outflows, but Korea underlying financial position remains solid

1/ Korean memory chips aren't selling at the same premium as Taiwanese made GPUs, but Korea's current account surplus is huge again -- $110b plus

2/

A new blog on the limits of China's ability to offset the ongoing slump in property investment with an ever-rising trade surplus

1/

cfr.org/blog/can-china… The IMF has been struggling with the apparent contradiction between the policies needed for internal balance (monetary easing, weaker currency) and external balance (a stronger currency)

2/

Hallelujah. The IMF has recognized that China's weak real exchange rate is a problem, and that it has contributed to China's export surplus and growing trade tensions. From @KeithBradsher in the NYT

1/ The IMF has lagged on this issue, not led ... and it still isn't quite calling for a nominal appreciation (though Georgieva may have hinted at the need for nominal appreciation to offset inflation differentials). The EU Chamber is more explicit (from the FT)

2/

Brutal -- but accurate -- assessment of the results of Trump's year one policies by @wsj_douglasj and @JonathanEmont of the WSJ

1/ "Strip out imports of energy, food and raw materials, and China is on track this year to post a surplus in manufactured goods of around $2 trillion, a huge sum that is on a par with the annual national income of Russia or Italy" 2/

Powerful article from @greg_ip

"China is now the world’s ... largest exporter, but ... It has never believed in balanced trade nor comparative advantage. Even as it imported critical technology from the West, its long-term goal was always self-sufficiency

Nice chart too

1/ Very much agree with his overall thesis, and with his policy prescription

2/

One feature of today's global economy: the incredible concentration of the global goods surplus in East Asia (using customs data). Way more so than in Trump one

1/ Implicit in the chart is the observation that the rest of oil-importing East Asia has maintained its goods surplus even as China's surplus has soared (helped by demand for Korean and Taiwanese chips)

2/

I will disagree with Scott on this -- there shouldn't be any debate about whether a stronger CNY is doable ...

Right now the CNY basically follows the fix; a stronger fix = a stronger yuan

1/

https://twitter.com/KennedyCSIS/status/1994447087212130765

FX settlement data clearly shows appreciation pressure (with intervention at the fix not at the strong side of the band)

2/

I am (obviously) a part of the "East Coast" think tank establishment Mr. Balding criticizes, & also served in the Biden Administration. But I would encourage Mr. Balding to read some of the work that I and my colleagues have done, as he paints with far too broad a brush

1/

https://twitter.com/BaldingsWorld/status/1992755045603873100

I would be the first to say that not enough was/ is being done on active pharmaceutical ingredients. But inside and outside of government I advocated for the 301 tariffs to be extended to rare earths/ magnets ... which was in the end done as part of the 301 review

2/

The Treasury International Capital Data for September is now out -- China's Treasury holdings were constant during the data that was missed during the shutdown. Japan is up. UK and France are down a bit -- with a rise in the smaller EU custodial centers

1/ The runup in foreign holdings of Treasuries has all been "private" -- tho note that funds that China holds in private custodians in Europe register as private, so the split is imprecise

2/

Crazy current account numbers for Taiwan in q3 -- a 20% quarterly surplus, and q4 looks like it will be bigger. That pushed the trailing 4q surplus up to 16% of GDP -- a record.

(and yet the TWD is weak, after hefty intervention in q3 changed the BoP dynamics)

1/ Taiwan's soaring surplus though hasn't translated into soaring demand for bonds in the last 4 quarters -- bond purchases picked up in q3, but no longer are on the scale needed to match the huge current account surplus

2/

A big new report from @AidData sheds insight into one of the mysteries of global capital flows, namely how does China's large/ growing current account surplus fund the US external deficit. The answer, in part, is lending by the state banks

1/ The disaggregated data shows that China isn't just funding publicly guaranteed infrastructure projects in frontier economies/ Africa. Its state banks also do a lot of lending to "private" firms, including loans that back Chinese firms going out

2/

The Economist takes a look at Taiwan this week -- and its peculiar combination of a weak currency and a massive external surplus;

"[Taiwan has] the world’s most undervalued currency and one of its biggest trade surpluses."

1/

economist.com/briefing/2025/… The explanation for Taiwan's exceptionally weak currency (on the big Mac index & pretty much any other indicator) is Taiwan's central bank "as Taiwan has exported its way to prosperity, the CBC has tried to avoid such a fate by suppressing the value of the local currency"

2/

Data on domestic sales is clearly off --

https://twitter.com/Eivor_Koy/status/1988524325474082996

And China's net auto exports far exceed the 1.3 m cars Germany exported on net in 24 ...

The old exportweltmeister has been dethroned -- and its economy is suffering at the hand of the new exportweltmeister (China).

That is the story told by both a new ECB paper and the FT in an excellent new piece

1/ Put simply, Germany is the most exposed large G-7 economy to the second China shock (Japan has been buffered by an incredibly weak yen).

2/

Germany needs to fully wake up (it is happening but too slowly)

China's auto export growth did not slow in October.

825K vehicle exports (an annualized pace of close to 10m), likely over 700K passenger car exports (8.5m annualized). Crazy numbers

1/ Overall export growth slowed in October, but auto exports were surprisingly strong (2024 forecasts that China's export book was set to fizzle out haven't been born out, export growth actually reaccelerated)

The vehicle surplus now exceeds $100b

2/

The first relatively weak Chinese trade data release in a while -- October is usually down v September, but y/y growth in exports and imports also stalled. If October is a leading indicator for q4, the goods surplus will stabilize at (gulp) around $1.2 trillion

1/ There is a standard seasonal fall in export in October tied to the mid-autumn festival -- and that dip may be a bit pronounced this October. But y/y volume growth looks close to flat (after a surprisingly strong 11-12% increase in Sept)

2/

Somehow, the US has ended up with a tariff structure for many goods that doesn't really encourage a shift in production out of China. Quote is from Sean Stein of the US-China Business Council, in a new piece from @AnaSwanson To be sure, the legacy 25% 301 tariff on lists 1-3 does discourage final assembly of those goods in China -- but the term 2 tariffs haven't added to that penalty ...

2/

nytimes.com/2025/11/02/bus…