SinoInsight 1
According to official customs data released on April 13, China posted a trade deficit in March, the first time since February 2017.
OUR TAKE
1. China’s trade deficit comes as the CCP is propping up the yuan to prevent depreciation and on the back of a string of United States economic policies (tax cuts; tariffs; Fed shrinking balance sheet and raising rates). Trade surplus was $48.4 billion in Q1 2018, or a year-on-year decrease of over 26 percent. While China typically sees an export deficit during the seasonal drop in February, this year is the first since China joined the WTO where the Q1 deficit of goods and services totals more than $20 billion.
2. China’s net exports to the U.S. in Q1 2018 were nearly 30 percent higher than China’s overall net exports, a situation which last occurred in 2011. It is possible that importers of U.S. products were concerned about the tariffs and increased shipments in advance. But even after subtracting the $12.3 billion difference in Q1 2017, China’s net exports to the U.S. are still 4.5 percent higher than its overall net exports. This means that China continues to be dependent on exports to America, and is at a disadvantage in a trade war. The Chinese Communist Party’s best worst option is to further open up China’s markets.
SinoInsight 2
A total of 239 short-term (three-year) local government bonds will reach their maturity date in 2018.
Total repayment is 838.937 billion yuan (about $133.695 billion). Between June to November, monthly repayments of over 100 billion yuan have to be made, or an increase of more than 100 times as compared with earlier months. Local governments would face substantial debt pressure.
WORTH NOTING
The government debt ratio of Guizhou, Tianjin, Chongqing, Yunnan, Qinghai is 78 percent, 76 percent, 70 percent, 69 percent, and 65 percent respectively—numbers far higher than the “red line” of 60 percent. Also, Jiangsu jumped several spots to become the most indebted province in 2017, and its debt repayment ability and risks are deserving of closer scrutiny.