Chinese Auto Imports Implode; Countdown to Yuan Devaluation

Bloomberg: China Exports Fall as Lower Demand, Strong Yuan Hurt Growth

Overseas shipments fell 8.3 percent from a year earlier in dollar terms, the customs administration said. The reading was well below the estimate for a 1.5 percent decline in a Bloomberg survey and compared with an increase of 2.8 percent in June. Imports dropped 8.1 percent, widening from a 6.6 percent decrease in June, leaving a trade surplus of $43 billion.

Along with weak domestic investment, subdued global demand is putting China’s 2015 growth target of about 7 percent at risk. The government has rolled out fresh pro-expansion measures, including special bond sales to finance construction, but has held off weakening the yuan as China seeks reserve-currency status.

China is not holding off on weakening the yuan. I don't know how the author meant the sentence, but while China is choosing not to let the yuan weaken, this isn't a cost-free choice. The yuan wants to depreciate and China must spend money to keep it elevated. China is propping up the yuan.

Domestically, the government is stepping up efforts to help growth. China is planning at least 1 trillion yuan ($161 billion) in bonds, and potentially a multiple of that, to fund construction projects, people familiar with the matter said earlier. Authorities are also expanding policy banks’ lending capacity.

China is going to the old playbook.

Here's the Custom's report for July. Columns left-to-right: total trade, exports, imports, trade balance. Then the same, but by percentage change year on year.

A noticeable change in this chart: Russia was dropped and Brazil was added. It's possible the numbers are very ugly considering the drop in oil prices.

Check out the collapse in auto imports, down 23% year-on-year. This is the cumulative figure, not the one month. I couldn't find the report with these tables for June, but as of May, auto imports were only down 11.6% by volume and 1.7% by value. For the single month of July, auto imports fell 30% by volume and 27% by value yoy. Auto imports by volume were flat from June, but down 3.3% by value.

Source: 今年前7个月我国进出口总值13.63万亿元

Balding put out a spreadsheet on Chinese economic support policies and now you know why the number is large and growing. The $1.8 Trillion Support Plan Not all of that support is reaching the market because banks have to lend and buy local government bonds, and they aren't doing enough of that.

Meanwhile, more bad debt: NDRC plans steps to bolster bond market

The NDRC will soon permit two policy banks to fund big ticket infrastructure projects through bond issues, but it was yet to finalize the details, said sources close to the issue.

The bonds will be issued by the China Development Bank Corp and the Agricultural Development Bank of China and the debt will be purchased by the Postal Savings Bank of China. The central government is likely to subsidize 90 percent of the interest on the securities, they said.

This isn't going to end well.