From Wolf Richter at wolfstreet.com:
Bad breath of zero-interest-rate era wafts over real economy.
To the chagrin of the government, China has one export that is booming: capital flight.
Fearing further devaluations of the yuan, a terribly inconvenient crackdown on corruption, political purges, and other mayhem, wealthy Chinese are trying to get part of their money out of harm’s way. Capital outflows tripled to an estimated $113 billion in November from October.
To prop up the yuan in face of this sort of capital flight, the People’s Bank of China has been selling foreign currency, including US Treasuries. As a consequence, its foreign exchange reserves plunged by $87 billion in November to $3.396 trillion, the lowest since February 2013. The export of capital is a booming business in China.
Actual exports weren’t so lucky, according to China’s General Administration of Customs. In November, they dropped 6.8% year-over-year (3.7% in yuan terms), after a 6.9% swoon in October. They’re down for a fifth month in a row. They’re a sign of crummy global demand for Chinese goods.
This has been the story of the Caixin Manufacturing PMI, which tracks manufacturing activity in China via a survey of purchasing managers. It has been mired in contraction mode for nine months in a row.
China is no longer the low-cost producer with an undervalued currency. The yuan is essentially pegged to the US dollar – now ironically called the “strong dollar” – and has been rising in near lockstep with it, except for the smallish devaluations. So China faces weak global demand and a currency that is strong in relationship to the currencies of many of its customers.
Imports fell 8.7% year-over-year (5.6% in yuan terms), having now fallen every month over the past year, a sign of collapsed commodity prices and lukewarm demand in China.
This swoon in exports has hit the container shipping industry at the worst possible moment: Infused with central-bank-managed optimism and flush with nearly free money from global monetary policies, executives of shipping companies have gone on an expansion binge for the past seven years. Drewry estimates that capacity of the world fleet will balloon by another 8% this year, while demand might edge up a measly 1%, if that – the lowest increase since 2009.
To continue reading: China Walloped by Crummy Global Demand and Overcapacity
