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Chinese Trade Crashes, And Why A Yuan Devaluation Is Now Just A Matter Of Time
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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shit's about to get real
King Dollar is backed by the best traders in the world, Yankee traitors!
chart porn
http://www1.chineseshipping.com.cn/resource/img/update/scfiallen.png
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.
i've always believed the chinese are the best mathematicians.
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.
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!!!!!!
+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.
this time it's different
That yanky dalla Gona look silly out there al by itself
Wai Yu No Bai ?
here comes the de-peg to the $
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.......
China is more of an exporter than an importer. Their collapse would affect commodities, which is what we're seeing
Yuan is pegged to dollar
does that mean dollar devalues also...
How about Back to School Sale
Still waiting for Balck Friday Sale. Gonna Be interesting Christmas from now on
Christmas will be interesting since the retailers need to start ordering in early September and I'm betting it'll be "light'......
They start ordering in Feb/March for xmas after the major trade shows in NY,for delivery
Sept/Oct..
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.
how do you say 'Geronimo' in Chinese...is there an equal statement?
Ping bang dam ow
Pon Zi
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.
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?
worthless.
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
Columbus sailed the very day all Jews were expelled from Spain in 1492 by Ferdinand & Isabella !
Coincidence?
i've thought the same thing and didn't have to read it anywhere.
Fuck you, GI.
Luk Yeow Be Lo!!!
ho wi fuk
????
Damn, can't use Chinese chars for "shit the bed" on ZH.
Long as their economy keeps growing 7.5% per annum as stated by CNBC will be all fine. Wait.
If it's on Jou Tube it's gotta be right.
You mean central economic planning doesn't work? Who knew?
When do Sino Tulips go on sale?
Buying The Fricken Dip
(not)
China not trading in US dollars.
China has gone Galt ?
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."
"Whaaat?"
"First you buy house, then you get visa."
"Okay, BRB."
Short pause.
"Okay, I bought a house. Now can I..."
"Car."
"Whaaat?"
"Now you need new car."
"But I just bought one yesterday."
"That old car. You need new one. Nice car."
You've got completely wrong numbers.
https://atlas.media.mit.edu/en/profile/country/chn/
http://knoema.com/nwnfkne/world-gdp-ranking-2015-data-and-charts
China exports: $2.12T
China GDP: $11.2T
Hence:
China Exports/GDP = 19%
and not 50% as you claimed. Big difference!
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.
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!
Jon Gruber is a 2 bit POS MIT economist. I wouldn't trust those numbers.
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 USA...um, I'm gonna go buy some more ammo...
Then the ZioCons crash the paper price of gold to $200/oz to destroy Russia and China.
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.
Define legit.
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.
Deal?
Deal! As long as you are bank.
So ya mean that Trump is correct..?
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.
F*ck diplomacy. Remember WW2......diplomacy came at the sharp end of two B29's flying 'special' missions over Japan. Diplomacy accomplished, end of. We've forgotte how to impose 'diplomcy'. Weak, feckless, stupid nation of layabout, lazy, low IQ entitled morons. Nation is doomed if the sh*t doesn't get real soon. And people wonder why Trump is garnering the poll numbers he's got? Paradigm shift... If we lose next Nov, RIP America. Popcorn time.....get your seats now for the main event.
Sheer arrogance! Are you aware that very important people from all over the world read this blog? The people who control you?
https://www.youtube.com/watch?v=NKkRDMil0bw
The world is a business.
I think Trump is doing well because sooo many people enjoy seeing our leaders squirm. Even the 'good' ones have not been honest. They underestimate our problems and couch their thoughts in politically correct speech. Trump does not seem to understand our situation either. He does not grasp that American workers must now and forever compete with the Chinese (and other) workers. Since they are all wrong, wrong, wrong, I am enjoying the pain and feined insult of the rest of the Rebublicans. fuck em, I've contributed to them for 25 years and not one is warning of the collapse to come...not one...ignorant or lying...same same...
You (should already) know - the most awful idiots are not those leading the masses ... the most awful idiots are those who elect them in power - again and again despite all the shit they have created - since decades, since centuries, since milleniums - since stonage.
There is NO political "culture". We have rules and books for everything. But the most awful idiots HAVE NO plans and no rules and no (time for) books and zero interest for "who" leads them.
Instead they are focused on chips, burgers, frites, porn, games, iphones, selfies and who is the biggest clown in town.
The earlier these - since stonage - useless awful idtiots are swept under the rug and away - the better.
Nothing will change before the house isn't burned down to the ground. As the leading idiots long have taken over - and what we are witnessing now are just the (soon to come final) excesses of ignorance.
Humans are a miserably failed experiment.
There's absolutely no doubt about that.
Donald - It's late night in Vegas. Do you know where your wife is?
-:)
Very funny.
The mayhem which brews shall be potent indeed once it shall break out.
Getting closer, no doubt. Do ya think they don't know? Really... is that plausible?
They're evil, not stupid.
Not buy human standards.
If it was stupid, it wouldn't be winning.
"buy human".
Sorry, 'human' has been sold.
It's past that already.
A devaluation of the yuan is just what Gold needs to get that 1.5 billion people go nuts and buy it up like soya beans...
Next bubble up... Gold!!!
"something Zero Headers have known "
Slip of the tongue?
The Yuan is going to continue to appreciate vs the $usd.
China is selling $usd debt and internalizing/assimilating demand.
Global trade has been declining for some time now, as evidenced by the drop in commodity prices and shipping rates. That being said, I don't beleive any number that comes out of China at this point, so this doesn't confirm or refute what ZH readers have known for months, that global trade has been grinding to a halt in the face of Fed tightening and the Chinese debt bubble bursting.
Remember the plan to have banks buy local govt debt to lower govt fonancing costs and free up some cash for more infrastructure investment? First Time In Four Years: Liaoning Bond Auction Undersubscribed, Yields Rise 15%
http://investinginchinesestocks.blogspot.com/2015/08/first-time-in-four-...As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalue next. Apparently we have entered a time of more or less stagnant growth in the EU, Japan, US and the BRICS combined with the destruction of financial wealth by negative real interest rates (produced by ZIRP and an understatement of inflation). In this situation it seems unlikely that a devaluation of the RENMINBI will have significant positive effect on exports from China. The demand for chinese goods is restricted by a stagnant economy in most of the world and as a result thereof the demand for commodities by China is reduced. The BRICS in return reduce demand for chinese consumer goods as well as for products from the US, EU and Japan and thus a self-feeding downward spiral seems to have set in. The demand for the consumer products made and exported by China is likely not extremely price elastic and I would not be surprised if a devaluation of the RENMINBI would fail to cause big effects. I doubt that at this stage the central banks could do much to improve the situation. The US, EU and Japan did arrive already at ZIRP nirvana and can do nothing but print. Global consumer debt carrying capacity is fully utilized. China will have to analyze if any chinese QE by itself will produce a measurable effect in this situation which I doubt. The great exaggerations of the recent years can not be continued (the number of additional ghost towns in China is not going to grow limitless) and the inevitable wind-down may have begun.
ok ok ... yuan devaluation against what?
USD? not so likely me thinks.
Somewhere down that road of yuan devaluation , chinese will reveal true gold holdings :-)
And that's reason why they are hoarding gold. And why they need to have double gold as FED has (cause chinese exports/GDPs is almost double)... which is ???? tonnes.
Which is "friendly" allowed by WS banksters and FED to reach new "equilibrium" in global economy - vice versa chinese will not sell all USTs ... and we all lived happily everafter (but from aprox 2020, not yet)
Forgot to mention good old Benoit, BIS and gang of billions futuresmarket dumpers ... can't you see that central planners are all well connected and working to our "benefit and future of global economy".
They were in fron of chinese gold buying and now there's nothing to buy on market ... total depletion ... now chinese are starting to buy gold miners :-)
They do not need to devalue the Yuan. That is idiot western thinking. All they need to do is what they are going to do anyway because the IMF did not let them in the SDR. They are going to pump the shit out out of the gold price. There is no reason at all to devalue vs the USD or Euro. It is a death spiral to race those turds to the bottom. It is horrible for their domestic economy as well. They have the gold tool, that the West forgot how, or is too stupid, to use.
http://www.bloomberg.com/news/articles/2015-08-09/china-slashes-u-s-debt...
Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show.
So policy makers just printed ($6.13 trilion - $2 trillion = 4.13 trillion.) $4.134 trillion dollars? Tripled the amount of money in circulation?
This won't end well!