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Feb 17, 16:12
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no way to prove this flowed into Treasuries -- but the warning the regulators provided to the state banks about portfolio concentration suggests that it was parked in the Treasury market (while the banks now search for alternaitves?)
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Feb 17, 16:11
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Notable acceleration in the fx securities book of the Chinese state banks (And their reverse repo/ other funding of global financial institutions) in January -- consistent with the $90b monthly increase in the reported fx balance sheet https://t.co/PNDncW2w2s
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Feb 17, 04:38
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Folks are talking about the reduction in China's visible Treasury holdings at a time when China is intervening like mad -- & about how China has reduced its exposure to the dollar when its state banks are buying tons of dollars to manage the CNY v the dollar. I don't get it https://t.co/sDvo6Qrc42
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Feb 17, 04:35
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Beijing really just outsourced its reserves to its state banks, and shifted out of US custodians
High return on investment tho. Tons of folks swallow the fall in reported Treasury holdings hook, line and sinker https://t.co/MKw3EJlSuR https://t.co/Ju09bENfyK
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Feb 17, 03:52
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And forward adjusted settlement has been over $100b a month/ $1.2 trillion a year over the last 2ms. Crazy numbers
(hard for me to understand as a result why there is all sorts of talk of China de-dollarizing, cannot happen unless China floats) https://t.co/jfENdLT1iW
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Feb 17, 03:50
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The annualized measures of Chinese intervention over the last 3ms that capture backdoor intervention by the state banks are at all time highs in dollar terms -- over $200b a quarter/ over $800b annualized https://t.co/7vlh3tf4CX
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Feb 16, 20:22
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Which implies, absent a renewed tolerance for reported errors (hot money inflows now) the need to keep adjusting the reported current account surplus up ... GS is being too conservative!
12/12
https://t.co/XinegO4W7w
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Feb 16, 20:21
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The Chinese data basically all tells the same story -- the massive customs surplus is now being intermediated by the onshore banking system, so foreign and fx assets are jumping up
11/ https://t.co/0hRxYSv624
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Feb 16, 20:19
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as are fx assets (especially securities and measures of dollar funding like reverse repos)
10/ https://t.co/jqJPzKJvXp
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Feb 16, 20:18
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And the foreign asset position of the state banks is exploding up these days
9/ https://t.co/g1UZX0dMe8
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Feb 16, 20:12
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And with exporters no longer wanting to hold dollars offshore and instead converting into CNY, the foreign asset position of the state banks is exploding -- which implies a higher reported current account surplus in 2026 ...
8/ https://t.co/uQkGUSBBKW
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Feb 16, 20:08
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So the bigger the visible financial outflow from China, the bigger the reported current account surplus (so as to keep errors low)
7/ https://t.co/nyax1zoACP
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Feb 16, 20:05
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And I think I know why -- after 2022, China's balance of payments has been adjusted (via the current account adjustment) to avoid any reported errors/ statistical discrepancy ...
6/ https://t.co/LS5FTRhE2d
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Feb 16, 20:02
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As the preceding charts make clear, China's reported current account surplus has increased because the downward adjustments that China introduced in 2021 and 2022 stopped increasing and started to shrink!
5/ https://t.co/aCbrz1C2F7
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Feb 16, 20:00
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So 5% of GDP (~ 1% of WGDP) is a reasonable base forecast, or it should be ... of course with China (after 2022) you also need to forecast what surplus China will report as well as the underlying surplus ...
4/ https://t.co/fVPb68J5qJ
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Feb 16, 19:58
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In fact, China now has a position net international investment position of close to $4 trillion, and a pretty balanced FDI position (so no more compositional effects) which should translate into an income surplus of say $100b!
3/ https://t.co/NmEpNKOQ0i
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Feb 16, 19:57
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Goldman's forecast -- which is almost certainly better than the IMF's forthcoming forecast -- isn't that bold. The customs surplus net of tourism (travel) is already 5% of GDP, and that should be a reasonable estimate of the surplus of a country with a positive NIIP!
2/ https://t.co/yyyrwirwGD
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Feb 16, 19:55
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Goldman got a bit of attention by forecasting that China's 2026 current account surplus will top 4% of GDP.
I need a better publicist! The GS forecast is still too low
1/ https://t.co/HOVKdw7LLS
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Feb 16, 16:26
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France, the UK, Belgium and Luxembourg don't themselves run current account surpluses -- so they aren't directly financing the US. And the US external deficit is still mostly bond financed (tho less so in 2025 ... )
6/6 https://t.co/JGQrtTSGCu
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Feb 16, 16:24
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That isn't to say that China is holding a ton of Treasuries in European custodial centers -- only that there must be links (direct and indirect) between the growth in these holdings and the surplus countries
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Feb 16, 16:22
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And it is probably not a coincidence that the rise in Treasury holdings of the custodial and European financial centers (now 3x China's reported holdings) loosely correlates with the fall in China's reported holdings and China's surplus
4/ https://t.co/DNDyFIiaq6
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Feb 16, 16:15
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The US data (even with an adjustment for euroclear) isn't mirroring that asset growth (it does broadly track China's reported reserves, tho, and makes me suspicious of any data set that implies the dollar share of reserves is below 50-55%)
3/ https://t.co/fqH8eOz2al
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Feb 16, 16:13
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China's reported current account surplus is up a cumulative $2.5 trillion since 2020 (and it is on track to increase by another $800b this year), and the real surplus is slightly bigger
2/ https://t.co/jhv3iv8I64
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Feb 16, 16:10
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Two things are simultaneously true --
a) China's surplus doesn't automatically flow into its fx reserves and then into Treasuries and Agencies
b) China's large ongoing surplus (+ the increase in fx assets of the state banks) cautions against using the TIC data uncritically
1/ https://t.co/XwdNoShkOB
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Feb 15, 19:39
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The global balance of payments still has to add up, and that requires a flow (direct or indirect) between the China and the US. China's surplus is too big, and the US deficit is too big, for any other equilibrium https://t.co/jPtyTMHvTq
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Feb 15, 19:37
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I personally don't think it is plausible that all these entities combined hold only ~ $700b of LT Treasuries. They likely have some in offshore custodians. And the anks clearly help fund the purchases of US bonds by hedge funds and other global investors -- https://t.co/NkzBOVBi7i
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Feb 15, 19:35
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The total offshore assets of SAFE, the CIC, the SCBs (over $1.5 trillion now) and the policy banks likely approaches $7 trillion. SAFE's securities holdings top $3 trillion & other investors hold ~ $700b in foreign securities ...
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Feb 15, 19:32
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My periodic reminder that the US TIC data doesn't measure China's holdings of US Treasuries. It only measures China's holdings of Treasuries in US custodians. The real question is how many Treasuries Chinese entities hold in non US custodians https://t.co/8UhvI7DuP8 https://t.co/y1pfcrxx03
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Feb 15, 18:35
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What is clear is that over the last 6 years China has gotten close to 6 pp of growth from net exports (i.e. an increase in the "real" trade surplus) which is a giant contribution from exports (imports have been flat) for a large economy ...
6/6 https://t.co/ujLNkWp86Y
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Feb 15, 18:34
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I also get a ~ 9% gap in import and export volumes in 2026 (with import volumes juiced by clear commodity stockpiling), so ~ 1.8 pp nx contribution (more if the services deficit shrank in real terms). But there is a lot of uncertainty around these numbers
5/ https://t.co/8Swd0Z0BEr
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Feb 15, 18:29
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And there is a plausible argument (China's underlying data is bad) that the net export contribution the last 2 years has been understated. The raw gap between export and import volumes in 24 was over 11 pp -- which works out to an estimated contribution of 2 pp of GDP 4/ https://t.co/YgHWZmBqU2
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Feb 15, 18:26
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Large sustained contributions from net exports are unusual, as they require an ongoing rise in the trade surplus. China's 1.5 pp contribution in 24 and 25 implies a 3 pp of GDP increase in the (real) goods surplus ...
3/
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Feb 15, 18:25
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Rhodium for example thinks total growth in 2025 was around 3% -- which would imply that the 1.6 pp contribution from net exports "drove" China's growth
2/
https://t.co/AyAkMRJOkE
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Feb 15, 18:23
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There is an important debate as to whether China's exports have gone from contributing to China's growth to driving China's growth. Getting a third of reported growth from net exports is a lot, and domestic demand growth is debated
1/ https://t.co/n9QuHPF9Z2
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Feb 13, 22:33
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these surplus numbers would be even bigger but for China's post 2022 BoP shenanigans ...
But they are still huge.
Someone will get a lot of business helping the state banks avoiding directly buying Treasuries now that the state banks are intermediating the surplus .... https://t.co/etHCY3Gf83
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Feb 13, 22:31
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One by product of China's exploding external surplus (goods surplus of $1.2 trillion, q4 current account surplus annualized is close to $1 trillion) is that it creates the raw material for some massive intervention numbers
h/t @Mike_Weilandt for the chart https://t.co/PMvhatfgWh
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Feb 13, 21:31
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I at least would appreciate a bit less rhetoric about freedom advancing at time when Argentina's external balance sheet hinges on big gifts from the official sector.
Time to rebuild reserves and repay the IMF for real (which means running a current account surplus!)
2/2 https://t.co/IesxK6uhYp
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Feb 13, 21:29
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And net reserves are still negative --
Argentina survived 2025 thanks to a $14b loan from the IMF and a willingness on the part of the IMF and the US to ignored missed reserve targets. Indeed, Argentina got another $20b backstop after burning through the initial $14b ...
1/2 https://t.co/wKuRxoF1DU
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Feb 13, 21:16
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@IMFNews And the challenge for France (as the G-7 Presidency) and Germany (as Europe's swing state on trade) is how to address these massive imbalances without any leadership from the United States ... Europe's non-Irish current account surplus is only $200-250!
15/15 https://t.co/be1ZnS8Nva
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Feb 13, 21:15
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@IMFNews so even with a low end estimate of China's true surplus, East Asia has a surplus of over 1.5 pp of WGDP
14/ https://t.co/hJhI6HujJQ
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Feb 13, 21:14
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@IMFNews And frankly that is too low -- the customs surplus of the region is $1.4 trillion -- and thanks to big investment income surpluses in Korea, Taiwan and Japan, the current account should be $300-400b higher ...
13/ https://t.co/GxytGZO2i2
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Feb 13, 21:12
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@IMFNews And Secretary Bessent needs to reevaluate whether he wants to continue to turn a blind eye to Asian currency under-valuations so long as the key surplus countries are funding (or slow walking the funding) of Trump's deals ...
Asia's reported surplus is $1.4 trillion ...
12/ https://t.co/99ONOcEOoE
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Feb 13, 21:10
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@IMFNews And it is quite clear that the current account now can be estimated from visible financial account, as the goods adjustment seems to vary so as to keep reported errors small (that isn't kosher ... )
11/ https://t.co/ueDoZNaGCk
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Feb 13, 21:09
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@IMFNews And while the statistics division of the IMF has defended China's revised BoP methodology as consistent with the standards of balance of payments manual 6, there is no defense for an approach that in practice has an arbitrary adjustment from quarter to quarter ....
10/
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Feb 13, 21:08
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@IMFNews and I note that it is easy to estimate what the current account surplus would be absent the 2022 methodological changes (those changes subtracted $200b from the goods balance in the BoP) and it isn't hard to reestimate investment income with realistic numbers
9/ https://t.co/Z89WwEqelA
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Feb 13, 21:05
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@IMFNews And the "current account gap" methodology for estimating real undervaluation (with a 3.8% of GDP reported surplus) generates an estimated undervaluation of 21% -- which would be closer to 30% if the true surplus is closer to 5% of GDP
8/
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Feb 13, 21:04
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@IMFNews Consistent forecast errors for the world second' most important economy should warrant some reflection around methodology -- the IMF's last staff report had (without any obviously policy or exchange rate shift) the CA surplus magically falling back under 2% of GDP
7/
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Feb 13, 20:59
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@IMFNews There was a bad forecast miss back in the summer of 2024 (imbalances receding ... ), as the IMF missed the reacceleration of Chinese export growth on the back of the RER depreciation. And the $365b forecast for 2025 was off by almost $400b ...
6/
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Feb 13, 20:57
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But even the reported surplus ($735 billion and heading up ...) is a challenge for @IMFNews and in particular for the advice it gives to the G-7 and G-20.
To start, the IMF needs to rethink how it forecasts China's current account surplus --
5/ https://t.co/Qx5OpdRmSn
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Feb 13, 20:55
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To be sure, I do think the real surplus (i.e. the surplus using China's pre-2022 methodology and with a reasonable estimate for the missing investment income payments) is between $900b and $1.1 trillion (4.5 to 5.5% of GDP)
4/ https://t.co/rt1LSV2Ldr
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Feb 13, 20:54
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There is still a gap between the reported goods surplus in the BoP and what it would be had China retained its pre-2022 BoP methodology, but the gap is smaller than last year and it isn't getting bigger ...
(I do take a bit of credit for highlighting this effectively)
3/ https://t.co/1K2mzEmdI4
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Feb 13, 20:53
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As a technical matter, China's surplus has increased because the underlying customs surplus is up -- but also because the downward adjustment to customs that China introduced in 2022 has shrunk ... it was only $30b in q4 25, after being almost $100b for a while in 24 2/ https://t.co/4Cdqe7BLNi
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Feb 13, 20:49
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China's reported current account surplus for q4 was $242b (close to $1 trillion annualized), and the 2025 surplus was $735b -- well over 3.5% of China's GDP.
This has big implications for the IMF, for Secretary Bessent and and the world ...
1/ https://t.co/yl8LFtN9rS
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Feb 13, 19:33
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Given the scale of the fx that the state banks have had to accumulate (presumably to help the PBOC out) over the last 2-3ms, we can be sure that the SCBS are sitting on a lot of dollars. Maybe not Treasuries. But certainly dollars
2/2
https://t.co/f7Ti74OFCa
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Feb 13, 19:31
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The surge in Chinese fx settlement (forward adjusted settlement is up over $200b in the last 2ms, so an annualized pace of $1.2 trillion) is a rebuke to all the China isn't buying Treasuries angst coming out of Bloomberg!
1/2 https://t.co/RoEWOEJOHF
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Feb 13, 18:59
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Forward-adjusted settlement over the last 12ms of data reached $475b (or over 2% of GDP). The US thus can easily name China a manipulator in its next report if it so desires -- though that risks disrupting the current path of summitry and detente.
4/4
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Feb 13, 18:56
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And with an underlying trade surplus of $1.2 trillion ($1.0 trillion goods and services using customs goods) the scale of potential intervention has gone up with time ...
3/ https://t.co/MX2nZQECIl
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Feb 13, 18:55
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Remember that a steady appreciation against the dollar (the CNY actually has depreciated v the basket so far this year ... ) tends to pull in money (exporters conert quickly, they want to hold CNY) and generates big intervention numbers
2/ https://t.co/cefQqy90hd
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Feb 13, 18:54
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No surprise, given the CNY's steady crawl up against the dollar -- but the best indicator of backdoor intervention showed another huge month of Chinese intervention in January. Forward adjusted settlement was around $110b -- massive, even if a bit smaller than December
1/ https://t.co/kjlOJwLaey
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Feb 13, 01:01
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And of course the weakness of the yuan -- which in broad real terms persisted in December and January even with the faster pace of appreciation against the dollar
5/5 https://t.co/TpGtXiuSIJ
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Feb 13, 01:00
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Over a long horizon, the real story (ha) is the current weakness of the currencies of the major Asian surplus countries
4/ https://t.co/Y3LDnaF95Y
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Feb 13, 00:58
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Of course the financial markets work off calendar years, and the start of 24 or the start of 25 is a convenient focal point. But the start of 24 was a super strong dollar. Relative to say 2020 (a more neutral tho still strong starting) the dollar is still up
3/ https://t.co/zS1YGpnhjq
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Feb 13, 00:56
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For the trade impulse from the dollar, it is important to factor in lags -- and I think the trailing 24m average gives some sense of that. It suggest the impulse from the dollar is still negative (there are other things going on as well)
2/ https://t.co/N36bAoVfGi
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Feb 13, 00:54
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A pet peeve. Talk about current dollar weakness. Numbers here are through December -- but in December the broad inflation adjusted dollar was stronger than in 01 or 02, the peak before 22-24
1/ https://t.co/c7KU9z1C6t
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Feb 12, 20:27
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Point being that the China shock has reduced Europe's non pharma (ex Ireland) surplus &Germany's fiscal shift is already poised to support a reduction in Europe's surplus. Imbalances really reduce to China (plus Korea and Taiwan) on one side and the US/UK on the other
7/7
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Feb 12, 20:26
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And that swing is consistent with a lot of known facts about the world (the current account surplus numbers include a bit of interpretation ... see China's 2022 data changes) such as the surge in China's auto exports
6/ https://t.co/SShLOouPFw
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Feb 12, 20:24
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The reported surplus of China is now bigger than the combined surpluses of the euro area (ex Ireland) and Japan -- and the true surplus is likely 2x larger. That's a huge swing from the days before the pandemic
4/ https://t.co/3V5IboQCRk
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Feb 12, 20:23
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The euro area's surplus fell sharply in 2025 -- largely because of a fall in the goods surplus (excluding the surge in Ireland's beat the tariff pharma exports to the US) ... and it is now well below the reported surplus of China
4/ https://t.co/r63itm04IS
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Feb 12, 20:22
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And it makes sense to net out Ireland's $60b (EUR 50b or so) current account surplus from the euro area, as it is a function of tax avoidance by corporate America (and adds volatility to the euro area number)
3/
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Feb 12, 20:20
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China's true surplus is of course closer to $1 trillion -- that is what its surplus would be using its pre-2022 balance of payments methodology ... and without the bizarre income deficit (despite + 4 trillion in assets)
2/ https://t.co/RCeQoblIA9
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Feb 12, 20:15
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The IMF's standard way of talking about global trade and payment imbalances tends to view Europe and China similarly -- but that is now out of date. China's reported surplus will top $700b in 2025, the euro area's surplus is now down to $250b (ex Ireland)
1/ https://t.co/MUaDTEew8T
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Feb 12, 17:42
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It is ignored because it is misleading to compare in country sales (generated by Chinese production for sale to Chinese buyers) to exports (goods produced in one country for sale in another).
Firms and countries are different economic concepts https://t.co/Eian2JmirS
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Feb 12, 17:33
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Before the global financial crisis, Chinese economist used to talk about the problem of "dual surpluses" -- a big financial surplus from FDI inflows, and a big current account surplus. The result was massive (and problematic) reserve accumulation. Just sayin '
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Feb 12, 17:32
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The last thing I would think that China wants right now is significant financial inflows. With a massive ($700b reported when in the q4 data comes out, $1 trillion in reality) current account surplus, big financial inflows imply huge reserve/ shadow reserve accumulation
2/2 https://t.co/b1qCckRlFW
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Feb 12, 17:31
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China usually liberalizes its financial account when the PBOC (now the state banks) are accumulating assets at too rapid a pace, and it wans the dollar risk to be taken by others ...
1/2 https://t.co/u7OpoBvr66
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Feb 12, 16:53
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Bingo
And the global trade surplus (ex pharma) is now primarily in China, Taiwan and Korea ...
Important qualification to the now standard argument the dollar has gotten weaker (which is true primarily if the clock starts at the end of 24, not the middle of 24) https://t.co/48pol9kFEL
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Feb 11, 21:52
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With a goods surplus (customs) of $1.5 to $1.6 trillion -- East Asia's total external surplus would be ~ $2 trillion a year/ 2% of WGDP with a realistic Chinese income surplus. Watch for the q4 numbers out of China and Taiwan ...
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Feb 11, 21:51
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Persistent trade surpluses in most of Asia have generated big net asset positions and income surpluses in Taiwan and Japan ... only China's bizarre (and likely fake) income deficit pull down the total.
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Feb 11, 21:49
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But the bidding war for chips is driving up the surpluses of Taiwan and Korea ... they are poised to reach all time highs in 2026.
3/ https://t.co/EXqgm9GVzy
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Feb 11, 21:48
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Huge surplus in China alone of course -- over 1% of WGDP
2/ https://t.co/oKzSdT2Wdp
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Feb 11, 21:47
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Crazy how much of the global (goods) trade surplus is in East Asia now.
Even with the "fake" Irish pharma surplus, the euro area is dwarfed
1/ https://t.co/eZjcgAlVqC
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Feb 11, 21:44
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The offshore profits of Apple, Microsoft, big Pharma &others = the main reason why the US doesn't register how much it pays the rest of the world in interest
(and it also starves the US of corporate tax revenue while providing Ireland and a few others with a windfall)
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Feb 11, 21:42
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Apple's global iPhone profit shows up in the income data (as a result of a tax choice made by Apple); Apple Ireland's profit adds about $70b to the US FDI income surplus ... https://t.co/xNEhtUOa1K
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Feb 11, 05:16
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So it my view, the Bloomberg story is more a CNY story (look how hard it has been for the state banks to find ways of using all the fx that has been coming in) more than a dollar story ... which isn't the CW
5/5 https://t.co/ySiXb3QUVa
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Feb 11, 05:14
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And that's why the blockbuster Bloomberg story from earlier this week registered a bit differently with me than with most -- I think it is a story about the difficulty that China faces managing the CNY ....
4/ https://t.co/h6oJo216SO
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Feb 11, 05:12
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But it is a bit implausible to think that China can plonk $100b a month (the fx the state banks bought in December) into just any market -- more or less has to be in Treasuries, or be lent out to institutions that buy Treasuries ...
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https://t.co/3z7J26OG0K
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Feb 11, 05:09
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My baseline estimates -- which have a big error band -- would imply a Treasury portfolio of $1.1 or $1.2 trillion ... which is modest relative to China's total external state controlled assets
2/ https://t.co/NDh1vbgvGE
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Feb 11, 05:06
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For a country that has added $7 trillion to the balance sheet of its central bank, the big state commercial banks and the big policy banks over the last 25ys, China actually does hold relatively few Treasuries
1/ https://t.co/DQlChFzgCp
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Feb 10, 03:16
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end January data here, but it highlights the difficulties the PBOC now faces. CNY is appreciating at a faster pace v the dollar in December and January ... but the broader trade weighted indexes all show renewed CNY weakness not strength https://t.co/c5kd2yrgIe
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Feb 10, 03:14
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The stronger the appreciation pressure, the more either the state banks or the PBoC need to buy to control the pace of appreciation ...
and the dollars bought do need a home, tho it need note be Treasury bills or near-dated notes ... https://t.co/jxiK7ZXqCH
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Feb 10, 01:39
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didn't move the market, but this blog has a lot more information than the Bloomberg story
https://t.co/3z7J26OG0K
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Feb 10, 01:39
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How to reconcile the Chinese warning with the TIC data?
a) the TIC data only captures those Treasuries held in US custodians (primarily those held by the PBoC)
b) the state banks bought a ton of dollars in December (and likely January) and parked them somewhere https://t.co/Vqj3YWkUef
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Feb 10, 01:35
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Here is the bloomberg story
https://t.co/XFmJhDKrkx
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Feb 10, 01:35
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Rather surprisingly, China still had to warn its banks about holding too many Treasuries on their balance sheets, per Bloomberg ...
(Something isn't quite adding up) https://t.co/TPqCqHEODL
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Feb 09, 22:06
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Germany didn't face the first China shock
German exporters benefitted more than US exporters from China's stimulus after the global financial crisis.
And Germany is now getting clobbered by the second China shock. https://t.co/EjRFQ1kknj
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Feb 09, 20:15
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See:
https://t.co/ArQq0CiSqF
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Feb 09, 20:14
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The counterpart to this on the financial side has been a mix of the TSMC outflow into US and Japanese factories, & a big reduction in the lifers hedge ratio engineered by lifer lobbying, a compliant regulator & a relieved central bank that doesn't have to intervene directly 3/
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Feb 09, 20:13
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Leading indicators (Asian export data + customs and border patrol data) suggest a surge in the US December trade deficit -- almost certainly driven by imports of chips. No way Taiwan's surplus surges by over $100b (a year) w/o some reflection on the US side ...
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Feb 09, 20:11
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Crazy export numbers out of Taiwan for January. Exports up ~ 70% y/y in dollar terms. A close to $20b monthly trade surplus ($18.9b). Looks a bit like a big oil price run up for an oil exporter ...
1/ https://t.co/2Z9WDLrD67
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