Some mixed messages amongst the tea leaves this week. The latest Chinese trade data is good, with exports showing double-digit growth. The background to that is the fundamentally solid state of the global economy, particularly the United States. That has good implications in terms of GDP growth prospects for Q2.
A raft of tech IPOs are also getting ready to go in the Hong Kong and Shanghai markets that have the potential to reduce even further the fundraising interest in the US markets from Chinese companies.
Meanwhile, amazingly, ZTE got a deal out of the United States that allows it to dodge the bullet. It has to pay a huge fine and agree to have US representatives planted inside the company to ensure compliance with sanctions. That will be a fun game for all. But it means for the international community that an opportunity to face more robustly an outstanding issue has been lost. There will be others.
On the other side of the balance sheet, China’s foreign exchange reserves fell in May for the second month in a row and the RMB rate is sagging. Meanwhile, the Shanghai stock index ended the week down, which is not surprising given the main market news of the week which was that withdrawals from all money market funds had been capped at RMB 10,000 a day. If the authorities set such a limit on your ability to gain access to your money, what is your reaction going to be? Answer: to withdraw RMB 10,000 a day. This is precisely the problem that Morgan Stanley closed its eyes to when they agreed to include Shanghai stocks in their MSCI indices. And why is it necessary to establish such a limit? Only one possible reason: demand.
But why would you want to withdraw money from an economic system that is growing at more than 6% a year?
The paradoxes rule. That is what makes China so interesting.