Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, “China’s Capital Outflows Are Soaring Again”, having hit $78 billion in September.
Over the weekend, and following the latest PBOC data which revealed an outflow of $56 billion in November (which was only $34 billion when FX adjusted), Goldman repeated its FX flow calculation using SAFE data, and found the China continues to mask the full extent of its outflows, which in November spiked to $69 billion, and that “since June, this data has continued to suggest significantly larger FX sales by the PBOC than is implied by FX reserve data”, once again suggesting that China is eager to mask the true extent of reserve outflows, perhaps in an attempt to not precipitate the feedback loop of even further panicked selling of Yuan and even more outflows, and thus, even more reserve depletion.
According to Goldman’s MK Tang, money has been leaving in yuan payments for 14 consecutive months, while the central bank’s yuan positions have slumped the most since January. The situation could get worse, said Banny Lam, head of research at CEB International Investment Ltd, cited by Bloomberg.
In addition to its now traditional credit-funded boom-bubble-bust cycle which rotates from asset to asset, and is then promptly recycled courtesy of the nearly $35 trillion in various financial system “assets”, another staple of the “new” Chinese economy are smog alerts following every burst in economic strength driven by “old economy” manufacturing.
That’s what happened overnight, when following months of manufacturing expansion, China’s pollution problem has again caught up, and as a result Beijing’s city government ordered 1,200 factories near the Chinese capital, including a major oil refinery run by state oil giant Sinopec, to shut or cut output on Saturday after authorities issued the highest possible air pollution alert.
Traffic on the city’s roads was lower than usual as residents complied with limits on car use and many of the city’s 22 million residents sat out the haze at home. “I’ll just take a rest and not go outside,” said Wang Jianan, a 23-year-old Beijing resident and teaching assistant. With Christmas just a week away, others resorted to dark humour to help cope with the latest episode of toxic air.
Chinese media reported that at least 388 people have been fined for lighting outdoor barbecues and fires.
China will soon slap a penalty on an un-named U.S. automaker for monopolistic behaviour, the official China Daily newspaper reported on Wednesday, quoting a senior state planning official.
Investigators found the U.S. company had instructed distributors to fix prices starting in 2014, Zhang Handong, director of the National Development and Reform Commission’s price supervision bureau, was quoted as saying.
News of the penalty comes at a sensitive time for China-U.S. relations after U.S. president-elect Donald Trump called into question a long-standing U.S. policy of acknowledging that Taiwan is part of “one China”.
Beijing maintains that self-ruled Taiwan is a wayward province of China and has never renounced the use of force to take it back.
Zhang was quoted in an exclusive interview with the newspaper as saying that no one should “read anything improper” into the timing or target of the penalty.
It seems that Trump’s phone call with Taiwan’s president Tsai Ing-wen as well a recent pair of tweets from the president-elect blasting China for devaluing their currency, taxing U.S. imports and military provocations in the South China Sea have served their purpose of ruffling some feathers in Beijing.
While the “official reaction” out of Beijing to Trump’s “provocations and falsehoods” has been muted, newspapers across China, often viewed as a mouthpiece of the Communist Party, have spent the day lashing out at the “diplomatic rookie.”. Per Yahoo News, the People’s Daily accused Trump of “provoking friction and messing up China-US relations,” a move they say will not help “make America great again.”
Donald Trump is a “diplomatic rookie” who must learn not to cross Beijing on issues like trade and Taiwan, Chinese state media said Tuesday, warning America could pay dearly for his naivety.
Trump’s protocol-shattering call with Taiwan’s president and a subsequent Twitter tirade against Beijing’s policies could risk upending the delicate balance between the world’s two largest economies, major media outlets said.
“Provoking friction and messing up China-US relations won’t help ‘make America great again'”, said a front-page opinion piece in the overseas edition of Communist Party mouthpiece People’s Daily.
The IMF has announced the weightings for currencies in it’s SDR basket of currencies. This is the first time the Yuan has been included in the basket.
Per the IMF website:
“The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. As of March 2016, 204.1 billion SDRs (equivalent to about $285 billion) had been created and allocated to members. SDRs can be exchanged for freely usable currencies. The value of the SDR is currently based on a basket of four major currencies: the U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.”
They go on:
“The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.”
China’s steel prices are rising on a combination of capacity-reducing efforts and flood damage in a major production hub, bolstering a Japanese market slow to recover from a demand slump.
Hot-rolled coil is trading at 2,900 yuan to 3,000 yuan ($436 to $451) a ton in China, with major producers Anshan Iron and Steel Group and Wuhan Iron and Steel setting prices on the material 200 yuan higher for September than for August. Such increases have rippled through to the East Asian spot market, sending hot-rolled coil there to $400 per ton, up 30% from the start of the year.
The Chinese government aims to lower the country’s steel production capacity by 45 million tons, or around 4% of the total, by the end of the year. Chongqing Iron and Steel has said it will effectively withdraw from the steel market in a pivot to the financial sector. Progress on these reductions, combined with damage from flooding in Hebei Province and stricter environmental regulations, cut daily crude steel output to 2.15 million tons in July, or 7% less than in June.
Declining steel prices through 2015 pushed mills and commodities traders to cut back on steel inventories, which now sit 10-15% below the level from last year, according to Shuhei Nakamura of Goldman Sachs Japan. Indications that overcapacity is coming under control are now spurring investment in steel futures. Rebar contracts have recently gone for more than 2,600 yuan per ton on the Shanghai Futures Exchange, a 40% climb from the start of the year.