China is quietly out of focus, but some important dynamics are going on
Inflation. China has been the primary exporter of deflation for the last 20 years.
Something has dramatically changed as it posted a 3.3% YoY changes in November (well above the 2.2% consensus) and 1.2% in October. It is the highest since October 2011.
This is a problem as, for example, Australia has an imported basket (usually in deflation) and quite high internal inflation basket. The sum of two usually give us a low inflation (so low interest rate). If the imported basket inflation start to rise…we would have quite fast an “inflationary issue”.
As now there are also inflation pressures from the Trump policies and oil prices – it is something to observe.
The Yuan had a big devaluation – partially due to the US D strength, and now USD/CNY is at 6.8894 and 7 is kind of a “magic/scary number” (in a 2015 post I wrote that by 2018 the yuen will be between 7.5 and 8). The USD appreciated 7% against the Yuan from the start of the year. Only the pound did worst (17%).
The Chinese Yuan reserves are now at USD3 trillion. The Chinese authority are starting to panic and start to put hard brakes to foreign investment.
For example Chinese investment overseas now are much more closely scrutinized, overseas remittances (and dividends) are starting to be denied and today’ in Macau, the UnionPay (ATM for Chinese) have a USD626 daily limit.
What is the big issue. USD3 trillion are still a lot, unless you consider relative to the M2 (Monetary Base of yuan circulating in the world…so practically ho much :blood” there is in the system). In October 2016 this amount was a staggering USD152 trillion (this is the latest data I can get). Which means that China has only 0.15% of reserves (half of the reserve position in 2008 with more than double the debt of 2008). Now you know why they are start panicking.
And…for Australians…did you noticed that the the 4 Quarter GDP figures dropped to -0.5%, mostly due an exceptional weakness to real estate services. All our economist tell us that is a one off event – but it has a strange coincidence with the Chinese restrictions…
Plus the big wild card of trump.
How serious is he in his tweet Chinese twitter tirade?
It seems silly…but President Elect Trump is actually not silly. My sources told me that the tweets were actually premeditated and appositely from President Elect Trump (so not yet President) to warn China that the Trump presidency will not be “business as usual”.
One of the main Trump adviser on China wrote a book “Death by China”. Be warned.
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