Stunner: China Set To Announce Record Trade DEFICIT In March

Tyler Durden's picture

Say goodbye to China's "export economy" paradigm. In a stunning development for trade hawks, and pretty much anyone who follows the biggest liquidity bubble in history, China Daily has announced China is about to announce a record trade deficit (yes, not surplus, deficit) for March. This makes the whole CNY undervaluation debate pretty much moot, as even China now moves into the ranks of net importers. From China's official daily newspaper: "The country will probably see a "record
trade deficit
" in March thanks to surging imports" and "will "fight
back" if Washington labels China a currency manipulator." Perhaps this finally explains where all the excess liquidity has gone: with China now not exporting to the US consumer, it has instead refocused on its own "middle" class. This means that Chinese administrators are much more focused on maintaining a stable economy, and will be much more concerned about economic overheating, which goes in line with the recent indications of material liquidity tightening out of Beijing. Market News reports that the actual deficit will come in at $8 billion for March, the first deficit since April 2004, when the gap was $2.26 billion. Maybe Albert Edwards will just have the last laugh with his iconoclastic prediction of a CNY devaluation.

More from the article:

After China's exports rebounded in
December, US legislators and economists have been demanding the Barack
Obama administration label China a currency manipulator in a US
Treasury report due out in mid-April, which will make it possible for
Washington to slap duties on Chinese imports.

"China's trade surplus with the US has been
turned into a key excuse by American economists to pressurize the
Chinese government to revalue the yuan," but, ironically, the calls
have been growing stronger even as the "surplus keeps falling", Chen

The ministry also said on Friday that Washington's method of evaluating trade figures magnifies the deficit with China.

In the three decades up to the 2008 global financial crisis, China's exports registered annual growth of 20 percent but the surplus with the US contributed a big chunk to China's total. Last year, China had a surplus of $143.38 billion with the US, accounting for a hefty 73 percent of the total.

"The impact of currency revaluation on trade is limited," said Chen.

From July 2005 to July 2008, the yuan gained a cumulative 21 percent against the dollar, but China's trade surplus with the US kept rising. When the yuan was steady against the dollar from 2009, the trade surplus dropped 34 percent.

"The deficit has been vastly overestimated based on American statistics," and according to the latest report prepared by both sides, the US deficit for 2006 is "26 percent higher than it should have been," Chen said.

The scariest implication: China is quickly running out of dollars which it can then recycle into US Treasuries. This is surely the biggest nightmare scenario for Tim Geithner. While this explains the decline in indirect bidding, it also may go to refute the whole premise of China being behind the direct UK-based bidders is flawed. And if so, is it merely just the Federal Reserve doing all the buying in a covert fashion (via BlackRock or othewise) as some of the more conspiratorially-minded market followers have speculated?

Here is the most recent prophetic insight from Edwards, as of March 2, pertaining to this critical shift:

Clearly to the extent that the rise in China?'s official reserves depended on the size of its trade deficit, there will be reduced purchases of US Treasuries. But China has, in part, merely been swapping official dollar purchases of US Treasuries with surging imports of dollar-denominated commodities on the trade account (see chart below).

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John McCloy's picture

 They have their heart set on becoming the leading global economy. Dumping all their U.S. treasury holdings is a small price to pay to crash a seemingly "invincible" economy. They will never have a better oppurtunity to bring us to our knees considering the war and economic spending binge we are currently on. This is why deficits and debt are as much a national security threat as nuclear weapons and terrorism. The supposed leaders of our nation are placing us in a dangerous predicament.

Now the Chinese will just consumer their own goods.

THE DORK OF CORK's picture

Nobody Nobody can consume goods like Americans - they will have a tough time convincing the Chinese proletariat the benefits of getting into debt for immediate satisfaction.

China is in a similar postion as pre-depression era America - a massive surplus country that all of a sudden can't find buyers

John McCloy's picture

   That is correct nobody can consumer like Americans. Even in this depression the zombies look for pleasure at the malls using their credit cards to further induce the temporary dream state. Imagine the chaos China is in for once the domestic retarded here in America learn to stop going to Crate & Barrel and Chili's between reality shows. I also do not think China will succeed in overtaking the U.S. since they are about to see a precipitous drop in U.S. consumer demand in coming months.

THE DORK OF CORK's picture

Well in the short term China is in big trouble but remember that after the Great Depression the world was your oyster - having said that China is in a poor geographical postion unlike the US which has access to 2 oceans etc etc.

bingaling's picture

They don't have to consume like Americans - The population difference can easily make up  what each consumer in The US consumes.

305 million US population vs 1.3 billion or 1300 million

On another note, there goes the only reason China buys our bonds .

THE DORK OF CORK's picture

Point taken but there is a lot of slack in the system if the Americans are serious about savings - besides I don't want anybody to consume stuff except me , we are living in a zero sum world now.

Missing_Link's picture

"We're living in a zero sum world now?"  Where do you get that, exactly?

It's not as if innovation and scientific progress have suddenly ground to a screeching halt.  There are plenty of extraordinary opportunities for non-zero-sum progress, particularly at the microscale and the nanoscale.

THE DORK OF CORK's picture

On the contrary I do believe that applied technology has slowed to a crawl since the 60s - there has been a few minor incremental developments ,no revolutionary physics that can be transformed into something real - just abstractions that cannot be observed in our reality - indeed physics has seemed to have entered a cul de sac of imagination.

OK we have fast computers - but what do  we do with all those electrons - we play with fiat electronic money ,back and forth up and down left and right. Also our scientists have become so enamoured with computer modeling that they fail to take the time to put the correct information into their electronic playthings - we have lost something vital I fear. 

narlah's picture

It's a sickness of the system. All of the brightest went into finance, law and politics.

A schientists actually DO NOT find new things, they get bought and sold on the market as just any assets, a trade between big pharma and so on corporations. In a world that population thinks how to "get money" - well you get money. Happy ? Invention is continuing, but with each new invention the danger of the whole house of cars to collapse is greater. Someday a invention about zero point energy or unlimited food production will finally slip in the media, and this scarcity creating system will be gone.


Until then , ask yourself this question : "How the hell , on the plamen earth there is a country that can produce 10 times of what they need, that can feed half of the globe. And still worry your "trade deficits" or "empty cities" or hungry people. Time to wake up ? Perhaps.

THE DORK OF CORK's picture

Sure if capital went back into applied science then shortages would disappear over time -but our monetary system has not recognized true capital since 1971 when its symbolic representation was removed from the financial radar.

You stated that all the brightest have entered the field of easy money dreams and yet you also state that inventions are continuing , by whom - the dumb or the dumbest.

I have had logical conversations about zero point and yet no evidence that I can touch or feel - I do not believe in such tales because of this fact. I have information. now about the money transfers which seem real so I can accept those people who forward the theory that the financial system is corrupt to the core and I can act on this fact.

Internet Tough Guy's picture

Ever see a chinese in a casino? They are the biggest gamblers and risk-takers in the world. And there are 1.3 billion of them. They will consume like locusts.

Missing_Link's picture

Doubtful.  Chinese culture is dramatically different from Japan.

Internet Tough Guy's picture

Apples and oranges.

Japan is a first-world nation. China is a poor nation whose citizens are forced to save but are desperate to raise their standards of living. Hundreds of millions of people are eager to have electricity, plumbing, better diets, all the things they know people in other countries have. Would you sleep on the floor and walk to work barefoot just so you can save money while making shoes for export? Or would you want to buy a pair of shoes for yourself?

THE DORK OF CORK's picture

Maybe you are right Tough Guy ,this planet is just getting too dam complicated to game with any confidence - even the central bankers are having a Tough time as inside information is remodeled in the world of cyberspace - I think the only solution is to drink more beer.

faustian bargain's picture

I think the only solution is to drink more beer.

Finally, a voice of reason.

nuinut's picture

Really? There is little difference between alcohol and reality TV, IMHO.

They both serve roughly the same purpose.

faustian bargain's picture

I was joking. Thanks for taking away the funny.

THE DORK OF CORK's picture

Nuinut I enjoy a different reality which the barman serves at regular intervals

tmosley's picture

There's the thing.  You don't have to go into debt to consume.  A long time ago in this country, Americans consumed less than they produced, and became wealthy because of it.  Consumer debt is what REALLY kills economies (along with taxation and regulation).

Read this and you will understand why that is the case:

THE DORK OF CORK's picture

In a debt money system the vast amount of people have to go into debt to consume - money would simply be not available to trade otherwise.

DirtySouth's picture

Sounds to me like it's about time TPTB begin a new game, with a new set of rules.

THE DORK OF CORK's picture

Most likely the US treasury will wake up one morning and begin openly buying gold on the world market or possibly the BIS will offer a physical only auction of gold.

Cognitive Dissonance's picture

"This is why deficits and debt are as much a national security threat as nuclear weapons and terrorism."

Don't forget all those "profits" being reported by American companies, which are supposedly driving the stock market up. It most certainly could be considered a national security issue to have a strong stock market, right? So maybe the USG is allowing some/many companies to cook their books. Don't forget this little gem is still in effect.

"Intelligence Czar Can Wave SEC Rules"

And they don't even have to tell you they're doing it. You want profits, you got profits. Now where's my bonus? Don't sweep this away as a stray piece of information that doesn't fit your world view. Much stranger things have already come to light about this Ponzi. Assume this is being done because it would certainly explain a lot more that the "official" reasons for the so called economic recovery.


Moe Gamble's picture

Commodity imports. Record stockpiles of oil, and growing.

TheGoodDoctor's picture

Which is valid. They are trying to run the prices down while stocking up. They want more on the cheap. I think they are smart. Plus, they are going to get their people to buy gold and silver thusly making their gold, silver, Rare Earth Metals, etc. reserves more valuable.  I like this game of chess though. Or moreso Liar's Poker. It cracks me up. This is by far better than any reality TV.

I mean we have this now this week. The CFTC. Senate health care. Hell I don't even know what economic reports are coming out. Am I missing something else big?

Dr. Acula's picture

"I think they are smart"

If the central planning committe's choices differ from those that market participants would ordinarily make, then they are harming the economy. Value is being imputed to capital based on the committee's arbitrary choices and their limited, centralized knowledge. Value is not being imputed based on market participants' subjective appraisals and extensive, distributed knowledge.

On the other hand, if the central planning committe's choices are exactly the same as what market participants would ordinarily make, then they have no need to exist.

So, the socialists are either harmful to the economy, or they are superfluous. I do not see how they are "smart".


tmosley's picture

They are smart in mitigating the damage already done to their economy by their dollar peg in such a way that it might actually benefit them.  If they just let it go, there would be a melt up in the Yuan and in PMs.

This is a game of chicken with a train, but China has managed to project the illusion that they are still on the track, when in fact they have turned 90 degrees.  They are goading the markets to push the dollar up, and everything they want to buy down, like a boxer "slyly" letting people know that the fix is in, and then winning while a friend makes a big bet on him.  The knowledge that the fix was in sent the odds to the moon, and the boxer's bet would make him an instant millionaire.  At least, so long as he can avoid the mobster who paid him to take a dive.  In this case, the mobster is on life support, as is most of his crew.  They can't do anything to stop it.

TheGoodDoctor's picture

Dr. Acula I mean what is the difference right now? Doesn't it bode well for the Chinese to get their raw materials on the cheap? Doesn't it benefit the US to have a strong dollar to sell their treasuries? What is the difference if the Chinese hold down the yuan when the US is holding down the prices of PM's artificially. I don't get it. You seem to want the game played fairly but it isn't being played fairly to begin with.

That is why it is so much fun to watch. I will stand by the chess comparison. Methinks even that it is just posturing by the US when they would rather have the dollar more valuable to sell treasuries and bonds. Am I missing something? Since when has the playing field been even?

Dr. Acula's picture

"Doesn't it bode well for the Chinese to get their raw materials on the cheap?"

Is the market price of raw materials cheap? To say this requires making a prediction about the future, i.e. an entrepeneurial decision. An entrepeneur risking his own money must be careful, for he may face personal ruin. But the Chinese government gambles with others' capital, seized through force. They do not need to fear making bad decisions. If they fail, they can simply seize more and try again.

"Doesn't it benefit the US to have a strong dollar to sell their treasuries?"

 The dollar has the value it has due to consumers' subjective perceptions. I guess the question you are asking is "Should the US government use its printing press to produce inflation?". For the US government this would be great, as it impoverishes its subjects while strengthening its own balance sheet.  Voters mystified by Keynesian monetary fallacies will gladly sell their vote just to get the next hand-out from the government. Holders of dollar denominated-assets, however, will incur great losses from monetary supply inflation. For US savers and creditors, subject to legal tender laws, it amounts to theft. When the newly created money is injected into the economy it also plants the seeds for the next bust.

"That is why it is so much fun to watch. I will stand by the chess comparison."

Just remember that the board and the pieces were stolen. The person who carved the pieces, the owner of the machinery that does the carving, the woodsman who produced the raw material, the person who stains and paints the pieces  - all of them have been ripped off so this game can be played. And the pieces are not black and white, they are all Red. And both sides will lose.

Itsalie's picture

Well, you are implying the market would always make choice that would not harm the economy. Maybe you have just returned from the mars. The market made most of the wrong choices for the last 2 decades, witness the drunk american consumers buying their fifth car in 3 years and nth 60 inch LCD TV, and of course all the bubbles that Mr Greenspan and Bernanke ignored. So your assumption on the wisdom of market participanst, like Krugman's of the "market" ability to absorb infinite US government debt, would need some calibration.


Ben Graham Redux's picture

Are we the slightest bit surprised at this deficit?  Take a look at a chart of copper - someone was buying in February/March.  The dollar hit highs in February and commodities hit trading lows.  Of course they were buying to give the impression of not being currency manipulators.  Are we collectively this stupid?

Simon Jester's picture


Yes, indeed. We are collectively this stupid.

tmosley's picture

No, collectively, we are much, much stupider even than that.

George the baby crusher's picture

You can fool some of the people part of the time, shame on you. I mean yes we are collectively that dim.

BlackBeard's picture

LOL welcome to loser's corner ya bunch of wangs!

TheGoodDoctor's picture

Hey man enough with the racism! ;)

Dr. Acula's picture

Why does having a trade deficit make you a loser?

I have a trade deficit with my supermarket. I buys lots of food there but they refuse to ever buy any food from me. Ex ante, I clearly value having food more than I value having green pieces of paper: otherwise I wouldn't have participated in the exchanges.


nope-1004's picture

 is it merely just the Federal Reserve doing all the buying in a covert fashion (via BlackRock or othewise) as some of the more conspiratorially-minded market followers have speculated?


Yes, and that is why Bernanke and Geithner need to go to prison.




Ned Zeppelin's picture

I think I said as much last week - that I would not be so quick to point to the Chinese for covert Treasury purchases through the UK.  More likely, it is covert QE.  Especially if there is no surplus. 

Someone smarter than me could probably figure out what is really going on in our economy based on an analysis of this "unexpected" collapse of Chinese imports.  Lady cashier at the WalMart near me says the grocery part of the store is busy, the rest, not so much.


farmjohnny's picture

WalMarts here in WI look to have reduced inventories by about 10%-15%.

You can drive a cement truck down the isles now!

tmosley's picture

It's the same here in Texas.  They removed ALL of the seasonal materials from the large lanes dividing the grocery and the rest of the store.  Oddly enough, I haven't been to the other parts of the store in months, so sure enough, traffic is probably down on that side.

Alexandra Hamilton's picture

This is interesting news, if you believe the Chinese government's statistics, that is. Anyway, just in time for the Chinese. Now everyone is running a deficit, we are all doomed.

THE DORK OF CORK's picture

Everyone can't be running a deficit - is the US about to go into surplus soon....... shock horror..... that would be a movie I would like to see.

Breaker's picture

What is left to sell? Discount tickets to Disneyland?

THE DORK OF CORK's picture

The American Dream Baby - infinite growth with a few minor glitches

Frankie Carbone's picture

Trade is a zero sum game. If everyone's running a deficit, then who's running a surplus?