Aurelia Butler

It’s not novel to suggest that Chinese economic data can be a bit. . . funky. Especially when it comes to politically-sensitive stuff like headline growth rates. Some see the hand of the CCP in this — discontinuing awkward data sets is hardly trust-building — while others mostly see an extremely rapidly growing, extremely large country where collecting GDP data is inevitably going to be complicated. Unfortunately, Chinese GDP numbers seem to be becoming funkier, rather than whatever the opposite of funky is (less smelly? musically tighter? less inclined to “get down”?). Fortunately, there doesn’t seem to be anything nefarious at work in this case.Take a look at the widening difference between the year-on-year GDP growth data and the number implied by quarter-on-quarter estimates.

The chart is from a Goldman Sachs report that examines the phenomenon. And as you can probably tell from the above chart, this isn’t necessarily a case of statistical shenanigans. Q-o-q and y-o-y discrepancies are fairly common, even in the US, and South Korea has also seen its margin of error grow since Covid. But the widening gap between the different Chinese GDP data series is quite stark. So what’s up?Goldman Sachs reckons it basically boils down to seasonal adjustments made by China’s National Bureau of Statistics to the quarterly numbers, regular revisions to its historical GDP estimates and Covid-caused “distortions” in collected data (the ONS can sympathise with the latter).The investment bank’s analysts noted that discrepancies like this tend to be mean-reverting in the longer run. And despite big swings in recent years the divergence with four-quarter moving average is pretty minimal.Goldman Sachs therefore doesn’t think this is cause for alarm, and reckons that the government’s growth target will still be manageable (after all, everything is managed in China): — We see a possibility that NBS may revise down 2022 GDP estimates during the annual GDP final verification later this year by ~0.4pp owing mainly to the ongoing downward revisions to 2022 new home sales. Note new home sales volume during January-July 2022 was revised down by 9%. Any 2022 GDP downward revisions should mechanically boost 2023 GDP growth, all else equal.— Incorporating July activity data and our high-frequency trackers for August, our Q3 GDP growth forecast (4.9% yoy) remains broadly on track, though it implies a slight sequential improvement in August-September. Further considering the likely moderation in inventory destocking in H2 vs. Q2, ongoing policy easing, and potential downward revisions to 2022 GDP estimates, we believe China’s “around 5%” GDP growth target this year is still achievable.Further reading— Country Garden is not a repeat of Evergrande, but it’s in the same hole (FTAV) More

Russian president Vladimir Putin said Moscow was “open to negotiations” about returning to a UN-brokered Black Sea grain deal, ahead of a meeting with Turkey’s Recep Tayyip Erdoğan.Giving a joint statement before today’s meeting in the city of Sochi, Putin said the two sides “would not bypass issues, related to the Ukrainian crisis”.“I know you want to raise the question about the grain deal. We are open to negotiations,” Putin said.Erdoğan said any agreement on the grain deal would be “very important” for developing countries in Africa. “The world is waiting for what will be the result from here today,” Turkey’s president said. Putin and Erdogan’s meeting comes nearly two months after Moscow pulled out of the grain agreement, which had allowed roughly 33mn tonnes of grain to be exported from Ukraine across the Black Sea. Erdoğan has sought to position himself as a middleman between Russia and the west. Ankara has declined to sign up to western sanctions on Russia, and the two countries have deepened their economic ties since the Ukraine war began last year. Turkey, a Nato member, played a key role in negotiating the initial grain agreement, which was negotiated in July 2022. More than half of the food had been delivered to developing countries, including Turkey, according to the deal’s co-ordination committee. Russia’s exit from the agreement has sparked fears of a potential food crisis in parts of Africa, the Middle East and Asia.Without safe access to Black Sea ports, Ukraine’s farmers have been forced to reroute their grain exports via land and its Danube ports. These routes carry significantly higher costs and could lead them to plant fewer crops, exacerbating fears of a food shortage down the line.In a sign of the extent to which the situation has deteriorated in recent weeks, Russia has launched a series of attacks on Ukraine’s southern Odesa region including its Danube ports such as Izmail. Kyiv claimed overnight strikes on Monday crashed across the river on to the territory of Nato-member Romania.Ahead of the meeting with Erdoğan, Moscow had laid out a list of demands for rejoining the accord. Russia has long alleged that the original deal was unfairly implemented, claiming that western sanctions had prevented the enforcement of a parallel deal to allow Moscow’s own agricultural exports.Western diplomats said Moscow had been particularly aggravated because it was unable to export ammonia, a key fertiliser ingredient, through Ukrainian controlled territory.  More

Hello from Brussels and welcome to Trade Secrets. Alan is away so I am here to fill you in on what is happening in the EU — still, as it likes to remind us, the world’s biggest trading bloc with the most trade agreements. I will look at whether that number will increase and its direction of travel as it continues to tool up on trade defence instruments and economic security measures. Or, to put it bluntly, become more French. (Or one could say American and Chinese).Get in touch. Email me at [email protected] tries to get to grips with economic securityThe next three months should see muscle added to the bones of a strategy outlined in the summer as Brussels responds to a unilateralist US and more coercive China. Time to stop being naive, as the French put it.The immediate cause was Washington pressuring the Netherlands and Japan to restrict sales of high-end chipmaking technology to China. Fear of retaliation by Beijing has convinced The Hague to favour collective defence. It and other “like-minded” countries such as the Baltics and Nordics have long fought against a French push towards greater protectionism. But their alliance was hugely weakened when its biggest member, the UK, left the bloc in 2020.Russia’s invasion of Ukraine has convinced its neighbours, generally free traders, to reduce reliance on possibly hostile partners. Lithuania’s decision to boost ties with Taiwan and back Ukraine led it to end almost all trade with Russia and China at the same time, noted one Brussels-based official.The strategy has three pillars — tightening existing controls on inbound investments; shifting decisions on export controls from national governments to an EU-wide system; and, most controversially, regulating outbound investment. Venture capital firms should not be funding Chinese companies to develop AI, weapons-grade technology and the like, and manufacturers should not be able to skirt export controls by producing the same parts in China, the logic runs. The European Commission has pledged to come up with a list of sensitive technologies that could be subject to EU-wide export controls by the end of the month. It is likely to be short since the issue is sensitive, officials say.By the end of the year expect a proposal to tighten inward investment screening. Most countries have now got some sort of national scheme and will probably have to refer more to Brussels, which can recommend, but not force, a rejection.Outbound screening will take longer, but even the liberal VVD party of Dutch prime minister Mark Rutte has backed the idea in its manifesto for elections in November. The Chinese questionThe drumbeat for action against China is growing louder. President Emmanuel Macron last week addressed France’s ambassadors and railed against Beijing’s import tariffs on electric vehicles. He contrasted its 25 per with the EU’s 10 per cent. Calling for reciprocity, he said: “We have to have a trade policy that defends Europe’s productive base.” He added: “I don’t want a France and a Europe where we can only buy technologies that are built either in China or in the United States.”Chinese imports are rapidly gaining market share in the EU and its overseas markets such as the UK. Meanwhile, EU carmakers struggle.Companies are wary of complaining about Chinese behaviour for fear of retaliation. So it’s significant that the trade commissioner told the Financial Times last month that he was willing to consider an “ex officio” case on his own initiative. Many in Brussels suspect that DG Trade is examining the subsidies Chinese carmakers have received — but the fateful political decision to pull the trigger has not yet been made. It will only go ahead if there is significant member state support. Diplomats from countries pushing for action say it is the last chance to preserve hundreds of thousands of auto jobs. Brussels has also been complaining loudly about the exclusion of European-made medical devices from China on the grounds that they do not meet Beijing’s standards. That could also result in EU barriers to Chinese imports of similar goods.Valdis Dombrovskis will visit Beijing for the latest high-level economic and trade dialogue this month in the hope of making progress on these issues.Progress on trade dealsMercosur — don’t hold your breath. On the EU side, green NGOs and farmers have formed an alliance to block it. Fears that Brazilian and Argentine farmers would chop down trees to grow cheap food to undercut led Brussels to demand an additional instrument to protect the Amazon. Mercosur is now preparing its counterproposal. The deal was agreed in 2019 by previous residents in Brazil and Argentina and the clearest sign of desperation is hearing Eurocrats point out that Uruguay is really keen.Mexico — waiting for Andrés Manuel López Obrador. The deal is done, but Mexico has not yet decided whether to ratify. EU officials say some in the president’s leftwing government are nervous of the labour and investor protections in the agreement. The US has been using the labour provisions in its own UMSCA deal to bring cases against Mexico City.Australia — the commission was surprised when trade minister Don Farrell broke off talks in July rather than clinch the agreement. As ever, the beef is over beef. Canberra is pushing for more sheep and cattle meat quota, having lost market share in recent years. Things could move again after October 14 and a difficult referendum on Aboriginal rights. If the government wins, it might feel empowered to face down farming interests. If it loses, a possibility that grows by the day, it could be too weak to do so. Charted watersChina is following its usual industrial playbook in the battery market. New analysis shows it is building far more plants than it needs for electric cars and grid energy storage thanks to state subsidies and soft bank loans.Production capacity at China’s battery factories is expected to reach 1,500 gigawatt hours this year — enough for 22mn EVs — more than twice forecast demand, according to data from CRU Group, a research firm.

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The belief among EU battery makers is that the Chinese aim to “pump and dump”, sending cheap subsidised batteries on to the world market. This has already happened with steel, aluminium and solar panels. There are also no EU producers left of a host of critical raw material such as magnesium because of cheap Chinese production flooding the market. After the EU put tariffs on Chinese steel production, it invested in plants in other countries and Brussels has now hit Indonesian plants with similar measures. With batteries and carmakers viewed as foundational industry by many member states, action is likely once again. (Please see above!)Trade linksThe drugs trade is booming. My Brussels-based colleagues Laura Dubois and Ian Johnston went to Antwerp, Europe’s second-biggest port, to find out how cocaine smugglers exploit security gaps.Chinese lenders are replacing western banks in Russia, extending billions of dollars’ worth of loans to the country. The move is part of Beijing’s push to establish the renminbi as an alternative global currency to the dollar, write Owen Walker and Cheng Leng.How do you de-risk from China without consequences? Italy’s foreign minister Antonio Tajani is in Beijing to find out as Rome’s hard-right government tries to extricate itself from the Belt and Road Initiative.Politico has a profile of the EU’s chief trade enforcement officer, Denis Redonnet, who will be at the heart of any action against China. It features ex-trade commissioner Pascal Lamy and other former colleagues.Trade Secrets is edited by Jonathan Moules More

“Thank You For Being a Friend” was the schmaltzy theme song of eighties sitcom The Golden Girls. It merits an ironic reboot to accompany China’s billions in lending to Russian banks. Russia badly needs external financial counterparties. The west has cut most such ties in response to the invasion of Ukraine. What suits Beijing in its mission to promote the renminbi as a world currency could end up hurting Chinese banks.China’s exposure to Russia’s banking sector quadrupled in the 14 months to the end of March this year. The country’s largest banks, Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China increased lending to Russia to $9.7bn from $2.2bn.China has not participated in the blizzard of sanctions imposed on Russia by western and Asian democracies. Smaller Chinese banks have strengthened ties with Russian clients.Big Chinese banks have typically distanced themselves from Russia. Some stopped lending entirely. When Russian companies first started using the renminbi to circumvent western sanctions, some Chinese lenders even restricted transfers from Russia. China’s growing Russian loan exposures smack of official policy imperatives. China resents the US dollar’s hegemony as the global reserve currency. It has for years been trying to boost the renminbi’s market in global trade with hopes it could become a reserve currency too.Last year, the renminbi surpassed the US dollar as the most traded currency in Russia. Dollar settlement of Russian exports plunged and trade with China hit a record $185bn. This has bolstered China’s hopes Russia could adopt the renminbi as a reserve currency.Chinese loan exposure to Russia remains small at less than $10bn. Any defaults would have negligible impact. ICBC alone has total assets of about $5.7tn, the largest in the world. So far, the west has steered clear of secondary sanctions on unaligned nations. But these remain a tail risk for Chinese businesses dealing with Russia. They could yet become a reality if, for example, Russia resorts to battlefield nuclear weapons. Chinese banks who went on lending could then find themselves cut off from all sources of US dollar liquidity. That would be hugely painful for a sector already disrupted by real estate chaos. The theme tune for the China-Russia lending love-in would then be “Thanks for the Memory”. More

The ban followed the start of Japan’s release of treated radioactive water from the destroyed Fukushima Daiichi nuclear power plant last month.The government had previously set up two funds worth 80 billion yen to help develop new markets and keep excess fish frozen until they can be sold when demand recovers, among other measures. With the additional funding, from budget reserves, support would total 100.7 billion yen, Kishida said.($1 = 146.3800 yen) More

The source, a Turkish official who requested anonymity, said Finance Minister Mehmet Simsek and Hafize Gaye Erkan, the central bank governor, will attend meetings in the Russian Black Sea resort of Sochi, where Erdogan is to meet Putin. The travels of Simsek and Erkan – who were named to their roles in June to orchestrate a U-turn to more orthodox economic policies – had not been previously announced. It was unclear which officials they would meet and what would be discussed. The central bank declined to comment. When the leaders meet later on Monday, Erdogan aims to convince Putin to return to a Ukraine grain-export deal that helped ease a global food crisis. Moscow pulled out in July. NATO member Turkey has close ties with both Moscow and Kyiv. It has opposed Russia’s invasion of Ukraine while also opposing Western sanctions on Moscow and has advanced economic cooperation with Russia since the invasion early last year. Since June, Simsek and Erkan have moved to roll back regulations, partly free up the currency and launched an aggressive rate-hiking cycle. Simsek travelled to the UAE ahead of a $50-billion investment deal in July between Turkey and the Gulf state. More

1. Chinese stocks surgeShares in China rallied on Monday, buoyed by a slow drip of stimulus measures by Beijing and U.S. labor market figures which bolstered predictions that the Federal Reserve will not raise interest rates at its next policy meeting.The Shanghai Shenzhen CSI 300 and Shanghai Composite indices both jumped by more than 1% each in a day of relatively thin trading stemming from the U.S. end-of-summer holiday.Hong Kong’s Hang Seng index, meanwhile, climbed by more than 2%, fueled by news that Country Garden Holdings had received approval from its bondholders to extend some debt deadlines. The stock rose by over 15%, making it one of the top performers on the Hang Seng, as hopes grew that the embattled property developer would be able to avert a possible default.Monday’s stock market gains were also underpinned by Friday’s U.S. jobs data which showed that the unemployment rate ticked higher while wage growth cooled. Markets are betting the Fed will keep interest rates on hold at their meeting later this month — a potential relief for Asian shares that have been battered by elevated rates over the past year.2. Oil prices choppyOil prices held near three-week highs in choppy trading amid optimism that top crude producers will agree to further output cuts that could keep global supplies tight.Russia has said that it will outline more reductions in supply this week. The statement added to speculation that Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, will also extend a one million barrel per day cut into October.Bets that the Fed will not hike rates further this month — and, by extension, not place extra downward pressure on economic activity — also bolstered oil prices.By 05:21 ET (09:21 GMT), the U.S. crude futures traded 0.1% lower at $85.44 a barrel, while the Brent contract dipped by 0.2% to $88.42 per barrel, with volumes light due to the U.S. market holiday.Both contracts ended last week at their highest levels in more than half a year, rebounding after having weakened in the two previous weeks.3. G20 summit aheadWorld leaders will convene in New Delhi for the G20 summit later this week, with the group’s western members at odds with developing nations like China and Russia over major issues like the war in Ukraine and climate change.Illustrating the divide is Chinese President Xi Jinping’s decision not to attend, a move that threatens to remove some of the luster off of the event. Xi’s presence could have provided a possible chance for him to speak face-to-face with U.S. President Joe Biden during a time of trade tensions between the world’s two largest economies. Xi and Biden last met at the previous G20 forum in Indonesia in November.Biden said on Sunday that he was “disappointed” by Xi’s plan to skip the meeting, but noted that he was “going to get to see him.” However, Biden did not say when exactly this discussion would happen.4. Novo Nordisk unveils weight-loss drug Wegovy in BritainCopenhagen-listed shares in Novo Nordisk (NYSE:NVO) (CSE:NOVOb) rose in early European trading on Monday after the Danish drugmaker released its popular weight-loss injection in Britain.Novo Nordisk has been attempting to grow the European presence of the drug, known as Wegovy, although this campaign has been hampered as it struggles to keep up with strong U.S. demand.The British launch of Wegovy, which is shown to help patients shed around 15% of body fat when used with exercise and other lifestyle changes, will be “controlled and limited,” the company said. It will be the second release of the drug in Europe in a little over a month. In the region, Wegovy is also currently available in Denmark, Norway and Germany.Soaring demand for Wegovy, as well as Novo Nordisk’s diabetes drug Ozempic, have pushed the firm’s shares to fresh highs. On Friday, the stock at one point topped fashion giant LVMH to become Europe’s most valuable listed business.5. Lagarde speech in focusEuropean Central Bank President Christine Lagarde is set to speak later in the session, with investors eager to hear any clues ahead of this month’s policy-setting meeting.What exactly the ECB plans to do with interest rates remains a cause for debate in the build-up to the September 14 event. According to Reuters, money markets saw a 30% chance of 25 basis point rate hike as of last Thursday, shrinking from as high as 60% in the prior week.Like other central banks around the world, ECB officials are faced with the task of cooling price gains without sparking a wider economic meltdown. The solution to the problem has been a tightening cycle that has brought borrowing costs up to a record high last reached when the ECB was attempting to prop up the euro in 2001.Data showing Eurozone inflation well above the ECB’s 2% target and contracting business activity have only added to the uncertainty, a prospect that could lead to volatility in bond markets and the euro prior to the gathering. More