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AI Summary. China's trade surplus with the European Union reached a record $32.9bn in a single month, driven by exports growing nearly 2x faster than imports over the first half of the year.
Bloomberg Staff BloombergCore argument: China’s trade surplus with the European Union climbed to a fresh high, keeping the issue of growing imbalances high on.
China’s trade surplus with the European Union climbed to a fresh high, keeping the issue of growing imbalances high on the agenda as the bloc weighs new measures to shield local industries. With exports to the EU soaring to a record, China’s surplus with the bloc rose 27% from a year earlier to $32.9 billion in June, according to Chinese customs data released on Tuesday. The country’s surplus with Germany more than doubled year-on-year while plunging 81% with France. For the first half of the year, China imported $135.6 billion of goods from the EU, up 9% from a year earlier. Meanwhile its exports amounted to $312.3 billion during the period, a gain of 17%.AI Summary. Renminbi bonds have outperformed all major bond markets across every major time horizon, as most countries now trade more with China than with the United States. Greater trade with China increases comfort holding renminbi savings and bonds, splitting the world into two blocs: a stable, deflationary Asia and emerging markets
Charles Gave and Louis-Vincent Gave GavekalCore argument: Renminbi bonds outperformed all major bond markets across 1–10 year periods, driving increased non-Western savings in Chinese assets.
Renminbi bonds have now outperformed other major bond markets year to date, over the past 12 months, three years, five years, so far this decade, and over the past 10 years. Most countries now trade more with China than with the US. This is arguably the major shift of the past two decades. Put differently, for all the talk of “deglobalization,” the world is not so much “deglobalizing” as “de-Westernizing.” The idea that the world is closing in on itself would sound silly to anyone living in Jakarta, Mumbai, Dubai, or São Paulo. And the more countries trade with China, the more comfortable they become saving in renminbi and buying renminbi bonds to fund future trade. In turn, this implies the coexistence of two worlds: one stable—Asia and emerging markets—and one unstable—the OECD; one inflationary—the OECD—and the other deflationary—Asia and emerging markets.AI Summary. China's total holdings of U.S. financial assets remain between 50–55% of its reserve portfolio, with a shift away from long-term government bonds toward short-term bills and mortgage-backed agency debt.
Brad Setser Council on Foreign RelationsCore argument: China’s dollar reserve share of 55% remains low, limiting further diversification and driving continued U.S. asset holdings of 50–55% of.
China hasn’t disclosed the currency composition of its reserves since 2020. But it isn’t clear that China’s central bank has shifted its currency composition of its foreign currency holdings around a lot, in part because the dollar share of its reserves was already low (5 percent) and going underweight the dollar means losing yield. But there is no doubt that China’s holdings did start to disappear from the U.S. data right after the G-7 immobilized Russian reserves in early 2022. There is a clear fall around this time in the bonds China holds in U.S. custodians. Estimating China’s true holdings of U.S. assets has gotten harder because it seems like China has diversified not just out of the US, but also out of Euroclear (a large Belgium-based custodian). The overall result suggests that China has reduced the share of its portfolio in long-term Treasuries, while increasing its bill holdings and maintaining a sizeable Agency portfolio of around 10 percent of total reserves (more than before 2020). Zooming the chart in highlights that the key implication of this upward adjustment to China’s estimated holdings of Agencies is that China’s total U.S. financial holdings remain between 50 and 55 percent of its reserve portfolio.AI Summary. U.S. firms hold dominant global economic power as measured by corporate profit margins, particularly in high-tech sectors, while China ranks as a second-tier player despite leading in industrial output. Profit concentration signals market power that GDP comparisons obscure, though China's loss-leading strategy in sectors like solar aims to convert production
Chris Miller Chris Miller's NewsletterCore argument: U.S. firms dominate global profit margins vs. Japan, Europe, and China, demonstrating superior economic power beyond GDP comparisons.
Profit, [Brooks and Vagle] argue, is evidence that one company can do something others can’t. Monopolists have the highest profit. Oligopolists make good money. Manufacturers of toys and textiles have razor thin margins. When Brooks and Vagle measure profits, they find that U.S. firms dominate, while Japan and Europe remain significant players. China is a second-tier player. The U.S. and allies lead in profits across the board. When it comes to high tech products, the imbalance in America’s favor is particularly pronounced. If profitability is the result of power dynamics, then the U.S. is far more powerful than comparing GDP or industrial output implies. There are a couple of potential counterarguments. Is China pursuing a loss-leading strategy, accepting low profits in the short run to win market share in the long run? In solar power, China has commoditized the sector and produced overcapacity that has led to losses, not profits. There’s no moat in solar the way there is around tech. Is perhaps profitability the right metric in peace but not in war? China is betting that its production advantage will create more durable CATL-style moats that eventually enable both profit and power.AI Summary. China's industrial policy now dominates over 315 of ~2,000 globally tracked export categories, up from 163 in 2016, spanning sectors from brain-computer interfaces to dry cleaning chemicals. China's fiscal deficits exceed those of the United States as a share of output, allowing it to sustain this strategy longer than foreign
Greg Ip The Wall Street JournalCore argument: China’s industrial policy reach expanded to 315 of ~2,000 export categories by 2024 vs. 163 in 2016, driving dominance across.
The Achilles’ heel of Chinese industrial policy is its cost and waste. China runs bigger budget deficits relative to economic output than the U.S. Outside advanced manufacturing, the economy is moribund, weighed down by debt, deflation and aging demographics. Many critics thus expect, even hope, that Chinese industrial policy will eventually implode under the weight of its own contradictions. But there is no guarantee that will happen soon. To paraphrase an adage about markets, China can stay irrational longer than foreign competitors can stay solvent.