It is time for us to look East again as a consequence of my Chinese theme is in play.
China’s annual trade surplus exceeded $1 trillion for the first time despite a deepening plunge in shipments to the US, risking a backlash from markets flooded by goods from the world’s biggest manufacturing nation. ( @business)
This is what is described as exporting deflation. But the theme of the property crash continues. This is because China like the other net exporters is consumption deficient which is why they pumped up house prices. actually I typed pimped by mistake and that works too. They were hoping for the “Wealth Effects” so beloved by the central bankers of the Western Capitalist Imperialists. The problem is that it turned into a bust meaning China if it was going to keep the economic show on the road needed to switch from trying to rebalance its economy to making the imbalances worse or a type of export or die in economic terms. That as you can see is in isolation working.
In fact last month the numbers were flying.
Exports returned to growth in November after an unexpected drop the previous month, rising 5.9% from a year earlier and far outpacing a 1.9% gain in imports, according to data published by China’s General Administration of Customs on Monday. The November surplus came in at $112 billion, the third-largest ever accumulated by China in a single month and far more than forecast by economists. ( @business)
That is the exporting deflation theme because whilst some things are new most of the exports will be replacing production elsewhere. This keeps happening.
A few years ago, a monthly trade surplus of over $100 billion would have seemed almost inconceivable, but so far this year it has happened six times. ( Michael Pettis)
As The Undertones put it.
Happens all the timeIts going to happen – happen – till your change your mindIts going to happen – happen – happens all the timeIts going to happen – happen – till your change your mind
In terms of China itself it means that it has become even more unbalanced as an economy.
The huge surplus also underscores how Beijing is struggling to rebalance the economy away from its dependence on demand abroad, with net exports accounting for almost a third of economic growth this year. ( @business)
Who is China exporting deflation too?
Even the Financial Times cannot hide it.
Emmanuel Macron went to China this week bearing gifts of Hermès scarves and returned with promises of pandas, but the apparent bonhomie between the French president and Chinese counterpart Xi Jinping could not hide a growing malaise in ties between their two nations.
This continued.
Though Macron seemed to relish his rock-star reception by screaming students at Sichuan University, his central message was of mounting fear in European capitals that China’s export-driven economic model poses an existential threat to their own industries. “These imbalances are becoming unbearable,” Macron said at a joint appearance with Xi in Beijing on Thursday.
The reality is that a lot of pressure is on the European Union as China has shifted its exports away from the US.
China’s exports to the EU expanded almost 15% last month — the fastest since July 2022 — with sales to France, Germany and Italy all seeing double-digit growth. (@business)
In terms of specifically French issues then it looks as though President Macron has been asleep at the wheel.
France’s goods trade deficit with China has doubled in the past decade to €47bn in 2024. French investment in China over the same period is nearly quadruple China’s into France. ( Financial Times)
The Financial Times must have hated typing this bit.
Policymakers in Beijing doubt Europe has the unity or the stomach to bear the consequences of erecting new barriers to cheap and high-quality Chinese goods.
Other places are affected although Japan has resisted.
Exports to Africa surged nearly 28% in November, while those to the Southeast Asian trading bloc gained only 8.4%, the least since February. Despite escalating tensions over the self-governing island of Taiwan, imports from Japan rose faster in November than exports to there, resulting in a $1.3 billion deficit for China. ( @business)
The European Union is arguing with itself
Even Politico is taking a look here.
European Commission President Ursula von der Leyen backed the idea of allowing governments and other public bodies to express a “European preference” in procurement after she embarked on her second term a year ago.
That means this in practice.
This week, the European Commission will for the first time explicitly state what its “Buy European” agenda means in practice. This will be included in Wednesday’s Industrial Accelerator Act — which is intended to ensure that billions of euros in procurement contracts flow to EU producersin sectors ranging from wind turbines to computer systems.
But other countries are afraid of another Franco-German stitch up.
They argue their economies can only stay competitive if they are free to choose the best products at the best price — even if that means buying from the Chinese or the Koreans.
Over the years these countries have suspected a “Buy European” strategy will actually weaken the EU economy by giving preferential treatment to heavyweight Franco-German companies, which will be under less pressure to compete and will charge unfairly high prices to suppliers and customers.
You can see why the Chinese think that Europe is weak and the economics are simple as it exports deflation to it.
Chinese Yuan
A small move but such as it is reflects economic theory as stronger exports lead to a stronger currency.
The spot yuan opened at 7.0683 per dollar and was last trading at 7.07 as of 0247 GMT, 20 pips firmer than the previous late-session close. ( Reuters)
Although is we look further back we find ourselves returning to the currency devaluer territory as it is just under 3% lower than a year ago. If we switch to comparing to the Euro we see that the Euro area has seen a bigger move with it rallying by 7% over the past year. So the Eurocrats have been cheering for a stronger Euro which has led to more deflation being exported to it from China.
Chinese Bond Yields
On the 17th of November I pointed out this.
It is increasingly looking like there will be a crossover.
The numbers back then were.
Japan’s 10–year government bond yield rose to 1.72%, reaching a peak not seen since June 2008. ( @FirstSquawk)…..But we can also compare it to China where its own ten-year yield is 1.81% so they are getting close.
Since then we have seen it happen with Japan at 1.97% so the equivalent of an interest-rate rise ( 0.25%) since then. China saw a fall today but is up a little. When we look at this in relative terms we see that China has not only seen a large move relative to Japan it has seen moves relative to elsewhere.
Comment
So today has brought pretty clear news of how China is exporting deflation. Care is needed with the exact numbers as only a week into the next month is nowhere near enough to accurately measure volatile trade flows. But in another irony the rhetoric from the European Union shows there is a lot going on here. We have looked in the past on cars being a factor here and BYD in particular and below are the numbers for November.
#Vehicles +48% to 81.8k units
#Vehicle -28% to 43k unit ( CN Wire)
Can you guess which is the exports and which the imports?
Podcast
