‘He’s An Importer/Exporter, Ok?’: China, Art Vandelay, And A Juggling Act

China, like Art Vandelay, is an importer/exporter, “ok?”.

And generally speaking, you want to keep up with how that whole importer/exporter thing is going for Art China, because you know, the fate of the entire global economy kinda depends on it.

So on Thursday, we got the June data and here it is:

  • China June Exports Rise 17.3% Y/y in Yuan Terms (median est. 14.6% rise y/y; range +11.7% to +17.1%, 10 economists).
  • June imports climbed 23.1% y/y (median est. 22.3% rise; range +16.7% to +27.3%, 10 economists).
  • June trade surplus 294.3b yuan; median est. 275.1b yuan surplus (range 227b-300b yuan surplus, 10 economists)
  • China June Exports Rise 11.3% Y/y in Dollar Terms; Est. 8.9% (median est. 8.9% rise y/y; range +6.9% to +14.9%, 38 economists).
  • June imports climbed 17.2% y/y (median est. 14.5% rise; range +7.0% to +20.2%, 37 economists)

China2

  • June trade surplus $42.8b (median est. $42.6b surplus; range $35.1b-$47b surplus, 35 economists)

Surplus

Right, so the imports number is encouraging. Generally speaking, that suggests domestic demand is still alive and (reasonably) well despite the ongoing crackdown on leverage and the falling credit impulse. This speaks to what we said last night about the extent to which Beijing has so far been successful in “targeting” their tightening.

As always, this is precarious and when shit is precarious, people will be skeptical about its sustainability. People like Julian Evans-Pritchard, China economist at Capital Economics, who said this on Thursday: “We are skeptical that the current pace of imports can be sustained for much longer given the increasing headwinds to China’s economy from policy tightening.”

The export side of the equation depends on global demand, another precarious situation. “Going forward, sequential momentum of exports, which has been slower in Q2 compared with Q1, will probably continue to moderate, primarily reflecting gradual deceleration in global demand,” Goldman wrote a couple of hours ago.

And don’t forget about the role the yuan plays here. After all, the whole reason they devalued in August, 2015 was to prop up exports.

“We still expect export growth to slow in the second half 2017 on stronger renminbi so far this year, and uncertainties in external demand,” reads a note penned by Zhao Yang, Nomura Holdings Inc.’s chief China economist.

That’s the rub. You prop up the yuan to avoid capital flight as you squeeze leverage out of the shadow banking complex, but in doing so, you keep the bilateral rate artificially strong (even if you can kinda hedge things with the basket) which in turn weighs on exports. Just another tightrope old Art is trying to walk.

Speaking of the yuan, it’s at the strongest level in more than a week on Yellen’s dovish tilt and on the back of stronger fixes (two days in a row) and corporate dollar selling (a sign of sentiment, basically).

The onshore yuan was up four days in a row and of course this all comes on the heels of the engineered short squeeze we got in late May/early June and a series of (suspected) spot market interventions designed to reverse the trend of the onshore spot closing at a discount to the fix:

Yuan

Fun shit. Also, it’s worth noting that the seven-day repo rate (that’s the de facto benchmark) put the brakes on a three-day advance on Thursday, falling after the PBoC doled out CNY360 billion in MLF funds versus 179.5 billion in maturities.

This comes during a week in which some 459.5 billion in OMOs and MLFs were maturing overall:

OMOs

They skipped OMOs, which meant CNY60 billion was drained via that channel.

As always, note that the answer to your question (i.e. “Is this is batshit crazy as it sounds?“) is: “yes.”

In sum, Art Vandelay is an importer/exporter. And he’s juggling a lot of balls…

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