The November TIC data is out -- in an unusual Friday data release. November is a long time ago of course --

But there is no sign that China did anything significant with its US holdings in November. Visible holdings are up slightly.

1/ Bill holdings are a little elevated relative to history -- but nothing wild

2/

Appreciate the quick response to my paper with Sander Tordoir from @lugaricano -- there does seem to be a real consensus that Germany is now facing a China shock, even if there is still a healthy debate on the right response.

A few reactions:

(1/many)

siliconcontinent.com/p/the-second-c… First, the solar example isn't an example of the failure of German industrial policy so much as an example of the failure of using demand side incentives alone -- Chinese producers ended up capturing the demand created by German PV subsidies.

2/

China's GDP growth would have been 3.5%, not 5%, but for the 1.5 percentage point contribution from net exports -- that's a huge contribution from net exports for a big economy

1/ The average contribution of net exports over the last 5 years has been close to a percentage point of GDP -- a big change from the 10 years after the global financial crisis --

2/

I have a new joint paper with @SanderTordoir or CER out today that makes the argument that Germany should not passively accept deindustrialization in the face of the second China shock, and a course correction in German policy is needed

1/

cer.eu/publications/a… The need for a rethink should be obvious: Chinese industrial policies have created Chinese competitors that are pushing Germany out of key European and global markets. German auto exports for example are down, and German net exports are now a fraction of Chinse net exports

2/

I will be blunt: Milei's "unorthodox currency policy" (the FT is right) is only consistent with repaying Argentina's external debt (another Milei goal) because the 2020 restructuring limited the amount Argentina has to pay ...

1/ Let's review the data -- Argentina's central bank has $25b in fx reserves (including a lot of CNY that it cannot use). But it has borrowed $18b from the PBOC and $14b from its domestic banks -- and fully converted its SDR balance into fx

2/

China has lots of BoP mysteries (the latest is the huge increase in the SCBs net foreign assets in December).

One is the small but persistent gap between reserves in the BoP and the change in reserves that shows up on the PBOC's balance sheet.

Think i solved that mystery.

1/3 Here is a chart showing the gap -- the BoP reserves number implies a higher level of reserves than appears over at the PBOC on its balance sheet

2/3

A chart that shameless builds off a Bloomberg chart that decomposed China's trade surplus by regions of the world --

The combined surplus with the US, SE Asia and Mexico is interesting -- and likely captures the "true" US contribution to China's overall surplus

1/ There is a technical issue because the chart uses China's reported surplus with the US, which was smaller than the reported US deficit with China before 2018 and has been bigger than the reported US deficit since the tariffs (so the time series is a bit off)

2/

Definitely interesting --

https://twitter.com/kaylatausche/status/1879199176074125614

Europeans recognize the need for the war to end, and end without a Ukrainian defeat.

They do worry that "seizing" the assets as opposed to "freezing" them reduces the attractiveness of the euro and euro denominated government bonds, as most of the frozen assets are not just in Europe but it euros

A bit of a surprise in the Chinese intervention proxies --

Settlement showed sales for December, as was expected ... but on a relatively modest scale given tariff expectations and rate differentials. Forward adjusted sales were around $20b

1/ the PBOC's balance sheet showed some very modest (~$5b) sales -- nothing surprising though given that the yuan's "fix" was fixed for December and spot was on the weak side of the band. Sales by the PBOC or the state banks were expected.

2/

Argentina's repayment of the first maturing bit of principal on its 2020 exchange bonds is being presented as a success -- and no doubt those holding the bonds agree ...

But there are some real issues that are being glossed over imo

1/

ft.com/content/b4f255… The most obvious is paying $3.7b (including $1.5b of principal) in fx to external bold holders when net reserves are in the red and usable dollar reserves are in the single digits (most reported reserves are CNY from the swap). leaves Argentina with no buffer

2/

Just a quick comment on how to do tariff analysis here

(wonky)

the revenue estimate on the 60% tariff on China is clearly off, which immediately raises questions about the overall quality of the work (even tho most of the other numbers look reasonable)

1/x

https://twitter.com/HayekAndKeynes/status/1877129278015303807

The revenue estimate for the 60% tariff on China is close to $250b, which comes from taking existing US imports from China (in the US data) and multiplying that times tariff rate.

but that isn't quite right ...

2/

Evan Medeiros of Georgetown reports that Xi and China are ready for Trump and his nationalist/ protectionists policies this time around.

China isn't alone -- the EU also spent the fall gaming out a second Trump term.

1/ Whether any of these gameplans will survive actual contact with Trump's second term policies is a bit harder to assess; I suspect that Canada thought it was ready too --

2/

ft.com/content/ca79e4…

The Stalwart's post showing the fall in Argentine bond yields reminded me of something I discovered of while preparing for the Economist's podcast -- Argentina's interest payments are really really low ...

(now less than the US)

1/ The gap between Argentina (2.5% of GDP in interest on the public debt in 23) and Brazil (~ 6% of GDP in 23, more now) isn't a function of different debt levels --

(the '23 spike for Argentina is a function of the depreciation)

2/

One global trend that I don't think has gotten enough attention -- the global goods trade surplus is increasingly a Chinese surplus.

1/x China now accounts for something like 80% of the goods surplus of the large east Asian economies -- and that is because China's surplus is up not because other surpluses have disappeared.

2/

Saudi Arabia ran a current account deficit in the third quarter, as oil export receipts didn't cover current external spending.

With a balance of payments break even of around $90 a barrel, the q4 external deficit will be large ...

1/x For full year 2024 the Saudis are on track to register a small current account deficit, as spending on imports is up ("Visions" that include new cities in the desert aren't cheap) and oil export revenue is down ...

2/

It isn't clear that President Xi would share the suggesting in Ling-ling Wei's latest assessment of China's economy that China is flirting with a lost decade -- but that in a sense is the point ...

1/ Xi looks at China's success in building a world leading EV industry, the emergence of a semiconductor design and manufacturing cluster centered around Huawei and SMIC and China's strength in clean technology manufacturing and sees a success story ...

2/

I see that President elect Trump's eye has turned to the trade deficit with Europe --

So a reminder that the single most important thing the US could do to bring down the deficit with the EU is to reform the US corporate tax code to end the pro pharma offshoring provisions

1/ Since the TCJA was passed, US pharma imports have gone to from just over $100b to just under $250b, and imports from the EU in particular have soared ...

(and that is mostly US firms producing in Europe/ especially Ireland) for the US market

2/

My retweet of Ling-Ling Wei's comment that China's economy is actually in a bit of trouble prompted a number of these kinds of comments.

I hadn't realized quite how many people still put faith in the official Chinese numbers.

So some data highlighting signs of weakness

1/

https://twitter.com/jaelonwang/status/1869602858569699754

First, I have always placed a lot of stock in the trade data (customs data) because it can be mapped against counterpart data. And that data shows a sharp deceleration in China's domestic economy in 2024. (given the pace of exports, imports should be up ... )

2/

Somewhat less than exorbitant privilege?

The q3 US current account deficit reached 4.2% of US GDP, and, in a milestone of sorts, the US balance on investment income turned negative ...

1/ Now the US still has a bit of privilege -- with a net external debt position of 45% of GDP (depends a bit on bond market valuation) and a negative net equity position, the income balance should be negative ... the world owns more US assets than the US owns global assets

2/

Documentation that China's 2024 export growth has wildly exceeded global trade growth -- with important consequences for the global economy.

A joint blog with @Mike_Weilandt

1/

cfr.org/blog/chinas-st… As in the pandemic (and for that matter some periods in 2012 and 2013, and most of the period before the global financial crisis) Chinese export growth is far in excess of global trade growth, and thus the export growth of other large economies

2/

The proxies for Chinese intervention for November are out -- and they tell a somewhat surprising story.

China didn't have to sell much fx to keep the CNY stable after the election of Donald J. Trump.

1/ The Chinese state banks were buying fx (limiting appreciation) earlier this fall (during the carry unwind), and they stopped buying in November -- but there is no real evidence of selling (I expected modest sales)

2/