Chinese Trade Crashes, And Why A Yuan Devaluation Is Now Just A Matter Of Time

Tyler Durden's picture

Two weeks ago we showed something very disturbing (something even the IMF is now figuring out): global trade is grinding to a halt...


... and in a dollar-denominated cases, has even gone into reverse.



Nowhere has this trend been more visible than in the IMF's own admission that global trade, growing at 7% in 2011, has nearly halved its growth rate, and in 2016 global commerce is expected to rise at the slowest pace since the financial crisis.


Overnight we got another acute reminder of just who is lying hunched over, comatose in the driver's seat of global commerce: the country whose July exports just crashed by 8.3% Y/Y (and down 3.6% from the month before) far greater than the consensus estimate of only a 1.5% drop, and the biggest drop in four months following the modest June rebound by 2.8%: China.


It wasn't just exports, imports tumbled as well by 8.1%, fractionally worse than the -8.0% consensus, and down from the -6.1% in June as China's commodity tolling operations are suddenly mothballed.

Goldman breaks down the geographic slowdown:

  • Exports to the US contracted 1.3% yoy, down from the +12.0% yoy in June.
  • Exports to Japan fell 13.0% yoy in July, vs -6.0%yoy in June
  • Exports to the Euro area went down 12.3% yoy, vs -3.4% yoy in June.
  • Exports to ASEAN grew 1.4% yoy, vs +8.4% yoy in June
  • Exports to Hong Kong declined 14.9% yoy, vs -0.5% yoy in June.

Slower sequential export growth likely contributed to the slowdown in industrial production growth in July. Weaker export growth is likely putting more downward pressure on the currency, though whether the government will allow some modest depreciation to happen remains to be seen.

As CA's Valentin Marinov summarizes:

"the collapse in exports seems to be driven by renewed weakness in the EU demand. Not great overall and highlights one distinct risk for the global asset markets we have been highlighting repeatedly of late. In particular, we were stressing the link between slowing global trade (both in manufacturing goods as well as commodities) and the recent sharp drop in central bank FX reserves. That drop should over time erode the sovereign demand for stocks and bonds. The resulting imbalance between supply and demand for global stock and bonds is still not fully reflected in equity risk premia (VIX is still quite law) as well as bond term premia (these are still low for the UST). A correction higher, presumably on the back of Fed liftoff, should weigh on a broad range of risk-correlated currencies."

All of the above, of course, is something Zero Hedgers have known since last November when we wrote "How The Petrodollar Quietly Died, And Nobody Noticed." More are starting to notice.

And while the above should not be news, neither should anyone be surprised that such ongoing trade collapse for the world's largest mercantilist, spells doom for the Politburo's 7% GDP target. From Bloomberg:

Along with weak domestic investment, subdued global demand is putting China’s 2015 growth target of about 7 percent at risk. The government has rolled out fresh pro-expansion measures, including special bond sales to finance construction, but has held off weakening the yuan as China seeks reserve- currency status.


Exports are no longer an engine for China growth -- no matter what the government does, it’s just impossible to see strong export growth as in the past,” said Bank of Communications economist Liu Xuezhi. “It means additional slowdown pressure, and it requires the government to be more aggressive in the domestic market.”

So while one can repeat that the PBOC will have to lower rates again until one is blue in the face (even as out of control soaring pork prices make it virtually impossible for the local authorities to ease any more), the realty is that, as we warned in March, a Chinese QE is now inevitable. Why? Because while the government is already clearly buying stocks thereby validating the "other" transmission mechanism, the only thing the PBOC still hasn't tried is to devalue the Yuan.  As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalued next.

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ted41776's picture

shit's about to get real

Publicus's picture

King Dollar is backed by the best traders in the world, Yankee traitors!

philipat's picture

Now that China has accumulated over 10K Tonnes of (Partly hidden in State owned Banks) Official Gold, the Chinese will again outsmart Washington and play US Dollar hegemony back against it. They WON'T devalue the CNY but instead will allow thw price of spot Gold to rise in CNY terms. In this way, Washington has two choices: Either allow the Comex price of paper Gold to rise in USD terms OR to have the USD appreciate against CNY via the Gold equivalence translation. Either way, China wins (Either its Gold reserves appreciate or in relative terms the CNY depreciates against the USD). This will take place simultaneously with, and so soften the impact of, a several step unpegging of the CNY to achieve full external convertability.

The US constantly underestimates the Chinese and will ultimately pay a high price for so doing.

dolbiere's picture

i've always believed the chinese are the best mathematicians.

old naughty's picture

Phil, how do you see demands (for CNY) factor in your scenario?

And then there's the possibilites that ptb do not see nation boundaries.

Dindu Nuffins's picture

Everything they've done so far, like supporting the market crash up to 4500 exactly as they said, (wow their intervention was brilliant and effective) gives me great confidence that China is as clever as you think!!!!!! 

ThirteenthFloor's picture

+1. That is exactly in the cards. You can now see the steps China took to start this. It really wasn't the morons in Wash., specifically as thur joined at the hip with banking and big corps. The western banks that are about to be taught a Confucius lesson.

ted41776's picture

this time it's different

stant's picture

That yanky dalla Gona look silly out there al by itself

ZH Snob's picture

here comes the de-peg to the $

KnuckleDragger-X's picture

I've been thinking about the next 1929 type event and considering China's present position in world trade, I'm starting to wonder if it might be the focal point for the next collapse. Too much of the world has become over-reliant on the Chinese and a big crap out in China might just be the trigger point.......

sun tzu's picture

China is more of an exporter than an importer. Their collapse would affect commodities, which is what we're seeing

mt paul's picture

Yuan is pegged to dollar


does that mean dollar devalues also...

I am Jobe's picture

How about Back to School Sale


Still waiting for Balck Friday Sale. Gonna Be interesting Christmas from now on 

KnuckleDragger-X's picture

Christmas will be interesting since the retailers need to start ordering in early September and I'm betting it'll be "light'......

Winston Churchill's picture

They start ordering in Feb/March for xmas after the major trade shows in NY,for delivery


The overstocking cycle is going to continue for a while yet here in the US and Europe..

Makes the export drop inexplicable unless supply lines are breaking, or something is missing

from the picture..

A head scratcher.


ali-ali-al-qomfri's picture

how do you say 'Geronimo' in there an equal statement?

indygo55's picture

There is an equal statement. Its "Geronimo". Its Native American. I read an article recently where they are pretty sure that Native Americans are definitely of Chinese (Asian) origin. 

monad's picture

I read an article recently that God gave America to the jews in 1492.

You just can't believe everything you read and hear, can you?

monad's picture

Divine revelation to everybody at the same time, DNA tests by a trustworthy 3rd party or its all astrology.

Google it. Its popular with the gimmedats

Sorry_about_Dresden's picture

Columbus sailed the very day all Jews were expelled from Spain in 1492 by Ferdinand & Isabella !


dolbiere's picture

i've thought the same thing and didn't have to read it anywhere.

GMadScientist's picture


Damn, can't use Chinese chars for "shit the bed" on ZH.

starman's picture

Long as their economy keeps growing 7.5%  per annum as stated by CNBC will be all fine. Wait.

Fahque Imuhnutjahb's picture

If it's on Jou Tube it's gotta be right.

Mini-Me's picture

You mean central economic planning doesn't work?  Who knew?

Arnold's picture

When do Sino Tulips go on sale?

Buying The Fricken Dip



Chuck Knoblauch's picture

China not trading in US dollars.

tarabel's picture



So, if exports comprise 50% of Chinese GDP and are down 8%, that signifies a 4% drop in overall GDP.

In order for China to meet it's 7% annual growth target, domestic spending will have to be up 22%.

They are going to need a Godzilla-sized thumb on the economic scale in order for that to happen.

"Hi, I'd like an exit visa to go visit my uncle in New York."

"First you buy house."


"First you buy house, then you get visa."

"Okay, BRB."

Short pause.

"Okay, I bought a house. Now can I..."



"Now you need new car."

"But I just bought one yesterday."

"That old car. You need new one. Nice car."

FinalCollapse's picture

You've got completely wrong numbers.


China exports: $2.12T

China GDP:     $11.2T


China Exports/GDP = 19%

and not 50% as you claimed. Big difference!


tarabel's picture



Hi FinC,

I'm not arguing with your figures, but a lot of Chinese economic activity internally is nevertheless pointed towards the export industry. A guy who works in an electronics factory probably gets counted as part of the domestic economy even though the products he makes are going overseas. Same for the bus driver who takes him to work and the cafeteria lady spooning out the rice.

Even at the figures you have kindly provided, the shortfall in exports still means that the domestic part of the economy has to work extra hard to make that 7% nut. So let's say that the export side knocks 1-2% off the GDP total. The internal number still has to rise to make up for the shortfall. Say a 7.5 or 8% figure instead of the overall 7.

I seem to recall that the US economy relies on consumers for about 70% of spending. Chinese consumers certainly do not account for more GDP activity percentage-wise than their American rivals.

In any case, I don't believe China is growing at 7%. Or 5. Or even at 1 or 2, except for faked statistics. I don't think the US is growing either, except in nominal bureaucratic terms.


Sorry_about_Dresden's picture

NPR did a story in 2012 (I think it was around 2012) claiming the PRC converted 50% of their excess FX reserves and bought US Treasury debt. That is a huge chunk of change to save. If so China has been stepping on internal demand for more than 2 decades to accommodate the US Treasury and FRBNY machinations, 50% of FX, so the PRC has more than enough internal demand to maintain growth regardless of external factors.

I don't think anyone appreciates this. 

China is just getting rolling!

monad's picture

Jon Gruber is a 2 bit POS MIT economist. I wouldn't trust those numbers.

Implied Violins's picture

First, they will unload every US treasury that they have.
Second, they will depeg from the dollar.
Third, they will reveal their gold holdings to be far beyond everyone's wettest dreams.

Fourth, here in, I'm gonna go buy some more ammo...

sun tzu's picture

Then the ZioCons crash the paper price of gold to $200/oz to destroy Russia and China. 

lasvegaspersona's picture

The lower the POG goes the more stress there is on the gold market. They seem to be having trouble keeping up with physical demand now. If the POG goes below $1000 we will probably see the gold derivative markets close. Maybe $1000 is not the price but at some point they become unable to deliver physical. For the derivative market to be legit there must be physical for sale.

ThrowAwayYourTV's picture

Might be able to get a great deal on a ghost city pretty soon.

My first bid is 100K for a whole city, but the Chinese goobermint has to totally ignore me and everything that I do there.


Ban KKiller's picture

Deal! As long as you are bank.

Clowns on Acid's picture

So ya mean that Trump is correct..?

Bitcoin Meiser's picture

Trump is correct, but he's an ass. Being correct doesn't mean that you should become President of The United States. Diplomacy is also required.