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    China Trade Surplus – Blessing or Curse?

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    January 14, 2021

    China posted a record trade surplus in December. Several EM central banks announced FX purchase programs.

    China posted a record trade surplus in December, with upside surprises both in exports and imports (see chart below). The numbers point to the on-going recovery of domestic activity, and they are also a testament to China’s ability to boost its global trade share in tough times―in part due to more effective pandemic controls. At the same time, the rising trade surplus reinvigorated discussions about China’s high savings, structural reasons behind them, and what it means for the rest of the world. China is expected (at least by some) to recycle more of its external surpluses into demand (rather than savings)―for the benefit of its own households and global growth.

    Emerging markets (EM) central banks appear to be on a foreign currency buying spree. We had three announcements in two days, including Russia, Chile and now Israel (USD30B in 2021). The reasons appear to be different. Israel’s central bank is not happy about the recent sharp appreciation. Russia simply follows the budget rule (which calls for saving the windfall revenues in good times). Chile wants to rebuild its reserves after interventions. This does not change fundamentals, but currency gains could be capped―at least for the time being

    I am on the “virtual” road this week, “attending” two conferences on Emerging Europe―in a very different time zone (hence, increased coffee consumption and very deep thoughts about the post-COVID viability of zooming). The post-pandemic outlook in the region is heavily dependent on the availability of vaccines. Still, vaccines do not guarantee that potential growth will recover to the pre-COVID levels any time soon. On the policy front, central banks made it very clear that they are preparing for a long-lasting presence in the government bond market. Sustainability and digitalization are the buzzwords in post-pandemic discussions, including one interesting observation that digitalization will help to de-politicize such important sectors as education and healthcare in less-developed countries in the region.

    Charts at a Glance: China’s Surging Trade Surplus


    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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  • Authored by

    Natalia Gurushina
    Chief Economist, Emerging Markets Fixed Income Strategy

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