Letter From Shanghai No 1062 - De-globalisation No Longer a Theory

President Xi is currently touring southern Guangdong, however, the Chinese media is somewhat reticent. Yesterday Xi visited a mangrove forest, a port, a water resource allocation project, a lychee orchard and a longan and lychee cooperative. Reports so far today suggest he has visited LG Display Guangzhou Manufacturing and GAC New Energy Automobile Co. “to learn about the local promotion of high-level opening up to the outside world, and the promotion of high-quality development of manufacturing industry, and the promotion of technology by enterprises”. No doubt further reports will emerge later today or tomorrow. These visits are not without political significance, particularly as Guangdong is home to 126 million people, and the central coastal area is the epicentre of China’s technology and platform industries. In these inspections, perhaps we see an acknowledgement that these industries play a central role in China’s development.

Elsewhere, China watchers are trying to reconcile the recent poor PPI and low inflation number, possibly indicating weak demand, with yesterday’s print of that often-volatile measure of credit and liquidity and my favourite, China’s Total Social Financing (TSF), which rose spectacularly to CNY 5.38 trillion in March (previous CNY 3.16 trillion, expected CNY 4.50 trillion). This is the opposite of the hoarding and saving narrative that we have been using for some weeks, and some investigation needs to be done on where this borrowing is going. Domestic commentary seems to indicate that the economy is being buffeted in post-Covid currents and that the economic data may not settle for some time.

Indeed, this morning’s data was just as dramatic. The Balance of Trade numbers revealed that exports from China surged 14.8% from a year earlier to an eight-month high of USD 315.59 billion in March, rebounding sharply from a 6.8% fall in January-February combined, and trouncing the market consensus of a 7% fall. So once again, the analyst consensus proves to be entirely wrong. However, it’s not the quantity but the direction of these exports that is the most eye-catching. Exports to the ASEAN nations lifted by 35%, while those to Russia and the EU grew by 136.43% and 3.38%, respectively. By contrast, shipments to the United States shrank 7.68%. Within the domestic commentary, the changing nature of China’s trade partnerships is viewed as “optimisation”, and it would seem de-globalisation is no longer a theory.

There is, of course, a tangential issue to the above, that is, the use and role of the USD in international trade. There is no global role for the USD if international trade continues to devolve into regional blocks. Although it may take decades, it would seem unless the US can establish a new frontier, the dollar in its current role is doomed.

Have a good day,

John