A vendor picks up a 100 yuan note above a newspaper featuring a photo of US president-elect Donald Trump, at a news stand in Beijing on Nov. 10, 2016. Trump has talked tough on trade — and his policies might actually help China. (Greg Baker/AFP/Getty Images)A vendor picks up a 100 yuan note above a newspaper featuring a photo of US president-elect Donald Trump, at a news stand in Beijing on Nov. 10, 2016. Trump has talked tough on trade — and his policies might actually help China. (Greg Baker/AFP/Getty Images)

Donald Trump talks tough on China and has appointed trade hawks Wilbur Ross and Peter Navarro to key positions in his administration. He has threatened to slap a blanket tariff on Chinese goods and talked directly to Taiwan’s President, previously regarded as a major diplomatic offense.

According to “Road to Ruin” author James Rickards, this is Trump’s way of opening the negotiations with China to reach a mutually beneficial trade relationship.

“[He] is saying to China: ‘Here is where we are going to start, what have you got for us? Are you willing to be more flexible on foreign direct investment, are you willing to treat U.S. companies in China more fairly, are you willing to stop the theft of intellectual property?’ If China makes concessions on these points he can say ‘fine, now my tariff is [lower].’ It’s the art of the deal; people don’t understand that about Trump,” Rickards told the BBC.

However, in any deal, the other party also has some negotiating chips on the table and China, for example, can hurt American companies exporting to China or American companies operating in China.

So who has the upper hand in the negotiations? According to a report by research firm Geopolitical Futures (GPF), the United States would suffer some damages in a trade war but would come out on top in the end.

“China would feel the impact of U.S. protectionist measures more than the U.S. would feel any economic retaliation China has at its disposal,” the report states.

What’s at Stake?

The most important point for both countries is the symbiotic relationship between China the exporter and the United States the importer. Between Chinese workers who produce cheap goods and U.S. consumers who buy them.

According to the U.S. Census, the United States imported $483 billion worth of goods from China in 2015. Since China joined the WTO in 2001, the United States was the top importer of Chinese goods in all but one year.

In an extreme thought experiment, about 15 million Chinese workers in the export sector could lose their jobs if Americans stopped importing from China altogether, a nightmare for the Chinese regime, which depends on employment to keep the people happy and itself in power. 

On the other hand, the United States depends on China for cheap imports. More than 90 percent of all imported umbrellas and walking sticks come from China for example, and 22 percent of all the stuff the United States imports.

Sourcing these products from somewhere else or producing them onshore will be difficult and almost certainly make them more expensive. However, this is a nuisance compared to 15 million unemployed Chinese. 

“U.S. dependence on Chinese goods is a matter of convenience,” states the GPF report.  The analysts say the United States has ample spare capacity in manufacturing to eventually make up for the shortfall.

According to the Federal Reserve (Fed), total industrial capacity utilization in the United States was only 75.1 percent in October of 2016.

“Of course, increasing capacity would not be easy. One caveat is that many of these industry groups have seen their capabilities atrophy after years of dismal performances. But these industries are much like muscles, atrophying in bad times but strengthening in good times,” states the report.

One example is the furniture industry, where Americans bought 17 percent of all sales from Chinese exporters in 2015. U.S. capacity utilization for furniture was only 75 percent during most of the year. If the United States ramped up production to 100 percent in an unlikely scenario, it could make up for all of the Chinese imports, albeit at a higher price. The same principle is true for many other industries from textiles to synthetic rubber and has the benefit that it would decrease American unemployment. 

Monopoly Power

In the discussion about trade with China, we frequently hear that China has a monopoly for Rare Earth Elements (REE), a critical component for many digital products. If push came to shove, China could simply cut exports to the United States like it did to Japan in 2010.

According to GPF, however, this is another classic example of price rather than actual availability. In 2016, China produced 89 percent of global REEs. However, the United States had its own company producing REEs up until 2015, when Molycorp Inc. had to declare bankruptcy because it could not compete with the low Chinese prices.

GPF estimates that potential production by Molycorp would be enough to satisfy U.S. REE demand, again at a higher price than the current ones from China and with a time lag.

“The result would not be a catastrophe and actually would spawn a capacity for REE production in the United States or another country, such as Australia, from which the United States could import,” states the report. 

Retaliation 

What happens if China retaliates and slaps tariffs on American products exported to China?

According to GPF, the last time that happened it didn’t end well for China. When President Obama imposed a 35 percent tariff on Chinese automobile and light truck tires in 2009, China retaliated by slapping a tariff on U.S. chicken meat. 

The U.S. tire tariff’s impact was limited: Imports from China fell by 50 percent until 2015 only to be replaced by South Korean and other manufacturers. This shows the limit on how many jobs can come back to the United States but also demonstrates that the United States is not dependent on China for goods supply.

The same goes for multinational corporations which may have to shift production to other Asian countries should China chose to make life difficult for them. 

The tariffs left their mark on the tire industry in China, however. “China’s capacity utilization in the various tire segments industry has fallen to between 50 and 60 percent. Hundreds of tire factories have closed their doors, and Chinese tire makers are cutting prices to the bone just to stay competitive in the market,” states the report.

And the U.S. chickens? Exports doubled from 2011 to 2016 and total poultry production in the United States increased during the whole period. 

“It is likely that future retaliatory measures would yield similar results: a short-term impact for the U.S. followed by a recovery,” states the report.

Trade Off

Although Apple could shift production somewhere else, it would take time and cost money. Starbucks, which makes 5.7 percent of its global sales in China couldn’t just replace a market of more than a billion consumers. The same is true for Boeing, which earned 13.1 percent of its 2015 revenue by exporting to China, the fastest growing airplane market.

However, there are many Chinese multinationals operating in the United States (for instance, FOSUN) or banking on the United States to become their next big market (Alibaba).

According to the GPF report, both countries would lose in a full-blown trade war, but it is the United States that holds the upper hand. Donald Trump understands this, which is why he is pushing China to get a better deal for America. If China also understands it’s in a weaker position, it will be able to avoid a lose-lose scenario. 

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A Chinese investor watches the U.S. presidential election on his smartphone at a securities company in Beijing on Nov. 9. (WANG ZHAO/AFP/Getty Images)A Chinese investor watches the U.S. presidential election on his smartphone at a securities company in Beijing on Nov. 9. (WANG ZHAO/AFP/Getty Images)

Immediately after Donald Trump became president-elect, the Chinese yuan fell through key support at 6.80 yuan per dollar, the lowest level since 2010.

The market reaction is hardly surprising, as Trump and his advisers have for a long time accused China of being an unfair trader and currency manipulator. They also vowed they would slap tariffs on Chinese goods if China doesn’t play fair in trade.

Trump adviser Peter Navarro says China has an unfair advantage because it follows lower health and safety standards and uses slave labor to keep labor costs competitive.

“If we learned anything from the World Trade Organization and NAFTA, it is that you have to put in stringent rules for worker health and safety protection,” he said, also mentioning China’s export subsidies and currency manipulation.

According to Navarro, if China doesn’t stop these practices, the United States will impose countervailing tariffs on Chinese products. Tariffs would result in fewer exports to the United States and therefore less demand for the Chinese currency.

“When Donald Trump talks about tariffs, they aren’t the endgame. The goal is to use tariffs as a negotiating tool to stop cheating. But if the cheating does not stop, we will impose defensive tariffs,” he said.

What Can Trump Do?

Victor Sperandeo, president and CEO of Alpha Financial Technologies LLC, thinks the United States could cap trade at a certain level, which “will harm China more than the United States. If we buy $500 billion, they have to buy $500 billion,” he said in an email. The United States absorbs 20 percent of China’s exports, worth $483 billion in 2015.

Other commentators think a Trump administration won’t be able to implement very harsh protectionist policies at all, because the traditionally pro-trade Republican Congress would have to consent as well.

“Big tariff increases on Chinese imports are quite unlikely. The focus will instead be on the theft of American intellectual property—something most people in either party would probably agree is a serious problem,” said Mark DeWeaver, author of “Animal Spirits With Chinese Characteristics.”

Chinese trade has been slowing but the trade surplus with the United States is still high (Capital Economics)

Chinese trade has been slowing, but the trade surplus with the United States is still high. (Capital Economics)

Jim Nolt, professor of international relations at New York University, said that even if a Trump administration can pass draconian sanctions, China could selectively retaliate.

“China may act strategically by targeting sanctions against U.S. exporters located in the states or congressional districts of powerful Republicans in Congress,” he said.

China could also hassle the American companies operating in the country, as it has done in the past, with anti-monopoly and other investigations.

Given these complicated details, a Trump administration will have to make some very good deals with China for its managed trade policy to work.

Involuntary Depreciation

While export subsidies, sweatshops, and a lack of environmental standards are common in China, especially in industries like steel and solar, the issue of currency manipulation is not as clear-cut anymore as it was 10 years ago.

Up until 2005, China pegged its currency to the dollar at a rate of 8.27 yuan, despite enormous exports and capital inflows that would have warranted a much higher exchange rate. China kept the rate stable by buying Treasury securities to the tune of $4 trillion, thereby creating an artificial demand for dollars.

After pressure from the United States, China let the yuan rise to a high point of 6.05 yuan per dollar in early 2014. Since then, however, the rate has not really been in China’s hands anymore.

Systemic economic problems and the creation of $35 trillion in bank credit, as well as regime leader Xi Jinping’s anti-corruption campaign, have led to massive capital outflows, estimated to be between $1.2 trillion and $1.5 trillion since the beginning of 2014. These capital outflows were higher than the trade surplus and placed downward pressure on the Chinese currency.

Capital outflows have accelerated again in the fall. (IIF)

Capital outflows have accelerated again in the fall. (IIF)

But rather than embracing this opportunity to let the currency slide and create an advantage for exporters, China sold off $1 trillion of its foreign currency reserves to keep the yuan relatively stable—and therefore give a fake impression of stability. So if anything, China has been manipulating the currency up, not down, for at least the last couple of years.

This type of manipulation continued after the U.S. elections, as Treasury bonds were sold en masse. Prices fell, and yields rose in a highly correlated fashion with the rise of the dollar against the yuan.

Maybe the Chinese want to wait and see what Trump proposes before letting the currency loose completely. Or would they like to show their power, to tell the president-elect they can move Treasury markets at a whim?

“Don’t look for China to ‘dump’ Treasury bonds. That is a widely mistaken notion. The dollar is the only currency big enough to hold Chinese reserves,” said Christopher Whalen, head of research at the Kroll Bond Rating Agency in New York.

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China's Premier, Li Keqiang (L) waves after giving a press conference with Kenyan President, Uhuru Kenyatta at State House in the capital Nairobi on May 10, 2014. (Tony Karumba/AFP/Getty Images)China's Premier, Li Keqiang (L) waves after giving a press conference with Kenyan President, Uhuru Kenyatta at State House in the capital Nairobi on May 10, 2014. (Tony Karumba/AFP/Getty Images)

Kenya has been through investment aid projects from both China and Japan. There are 50,000 Chinese and 700 Japanese living and working in Kenya, but these two Asian groups don’t mingle with each other, and their conduct and business approaches differ considerably. Though Chinese investment is much greater, Kenyans favor the Japanese way of doing business.

Kenyans are able to distinguish Japanese and Chinese. I wondered how they could tell the difference and asked some of them. They told me that those who wear short-sleeved shirts and dress pants to work are Japanese, and those who wear T-shirts to work are Chinese. Also, Japanese play golf on their days off, while Chinese get together to drink.

And how do Japanese living in Kenya perceive the Chinese? A Japanese trading company leader told me, “Only the Chinese dare go to Kenya to do business carrying a shabby suitcase and without knowing any English.”

Most of the 50,000 Chinese are there for gold exploration. Some are employees of state-owned enterprises and large private enterprises, and others are self-employed businessmen trading and selling Chinese daily necessities.

Different Agendas

Data shows there are more than one million Chinese in Africa, and each and every one of them is involved in doing business. On the other hand, there are less than 5,000 Japanese in Africa. Their goal is to help Africa develop their education and agriculture systems and building hospitals in rural areas.

Kenya’s capital, Nairobi, is the home of two headquarters of the United Nations. In addition, International Civil Aviation Organization offices for eastern and southern Africa are also based in Nairobi. Therefore, Nairobi attracts investments from around the world, including from China and Japan.

Road Construction Projects

In 2008, the Chinese government started to fund a highway construction project connecting the northern industrial city of Thika. The highway was constructed by three companies, China Wuyi, SinoHydro, and Shengli Oilfield. The total cost was 31 billion Kenyan shillings (about $360 million). The 50 km highway extended the original two-way, four-lane road into a two-way, eight-lane highway and included East Africa’s longest highway bridges, underpasses, pedestrian bridges, etc. The Chinese companies built this highway in four years.

In the same year, the Japanese government invested 2.5 billion yen ($24 million) to fund construction of the 15 km long Kileleshw road running through the center of Nairobi. The original plan was four lanes, but the Japanese finally turned it into two lanes, and it took them six years to build.

Chinese media reported how the Chinese construction team surpassed Japan’s in completing their road construction project better and faster. However, the story turns out to be a bit different when taking a closer look at the two projects.

Why did the Japanese change the four-lane plan into two lanes? The Japanese government conducted research and found that local residents love running. They therefore convinced the Kenyan government to change it into a two-lane road, including spacious sidewalks for people to walk and run. At the same time, they built two sloping drain embankments on both sides to allow small animals to escape from the drains during times of flooding.

Because the road goes through the city center, they also created a monument so many Kenyans can remember and appreciate Japan for assisting in this road project.

According to Laban Onditi Rao, the vice chair of Kenya’s National Chamber of Commerce and Industry in Nairobi, the Japanese hired local construction companies to build the road and they purchased local raw materials, while the Chinese imported raw materials and labor from China.

China was actually dumping excess supplies in Kenya; while calling it aid, they profited from it. In actuality, Japan’s assistance and investment model brought greater economic benefits to Kenya, with better social effects, Mr. Rao said. He suggested that if China could be more like Japan, employ more Kenyans, use raw materials from Kenya, and leave money in Kenya, that would change the Kenyan people’s opinion of China.

Xu Jingbo is a well-known Chinese journalist living in Japan. He is the founder of ribenxinwen.com, a Chinese website that reports on Japanese news. This is an abridged translation of Xu’s article posted to his personal blog on Aug. 28, 2016.

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This long exposure picture shows apartment buildings and office blocks clustered tightly together in Hong Kong's Kowloon district, with the famous skyline of Hong Kong island in the background, on Oct. 28, 2013.  (Alex Ogle/AFP/Getty Images)This long exposure picture shows apartment buildings and office blocks clustered tightly together in Hong Kong's Kowloon district, with the famous skyline of Hong Kong island in the background, on Oct. 28, 2013.  (Alex Ogle/AFP/Getty Images)

On the surface, China’s capital outflows were only $30 billion in May, far below the $100 billion clip seen earlier this year.

So all is well in China? Not quite. We have seen that anecdotally people still strap cash around their waist and try to smuggle it across the border.

Chinese companies still make strange acquisitions to be able to move capital to other countries, like this home appliance maker buying an Italian soccer club.

Another statistic is quite telling that not all is as it seems. Chinese imports from Hong Kong skyrocketed 242 percent in May compared to last year and 21 percent compared to last month.

Why is this strange? Because Hong Kong exports to China (exactly the same thing, except for it’s a different agency reporting the numbers) have been falling this year, like 4.8 percent year over year in April. Also, total imports including Hong Kong were down 10.3 percent over the year.

“Another interesting contrast is the trade data of Hong Kong, though it has not out for May yet, Hong Kong exports to China has contracted for 12 months when for most of the time China imports to Hong Kong was rising,” writes investment firm Natixis in a note to clients.

(IIF)

(IIF)

The discrepancy is literally off the charts. So how can this be? Most analysts agree that Chinese companies hand in fake invoices to the regulator so they can wire money to Hong Kong and circumvent the limits on outbound money flows.

“The over-invoicing of imports, particularly via Hong Kong, remains a source of capital flight, though it only accounts for around 2 percent of total imports,” the International Institute of Finance (IIF) writes in a note.

In the past and during the time when China accumulated its vast stash of foreign exchange reserves ($4 trillion at the peak in 2014) this flow was reversed and exports to Hong Kong from China were rising while Hong Kong imports from China were stable.

“The China-Hong Kong trade is a channel of speculative flows. We called these flows ‘speculative’ because these flows ride on the trend of the yuan movement and brought capital into China when the yuan appreciated. It is logical that the reverse happens now as the yuan depreciates,” writes Natixis.

(IIF)

(IIF)

According to Natixis, trading companies in Hong Kong and the mainland partner with commodity companies dealing in scrap metal and scrap plastic. “The goods do travel across the borders although the value of the goods could be in question.”

Given the discrepancy in what essentially should be the same number, there is no question the value of the good is inflated to funnel money out of the country. According to Natixis, this could even be beneficial for regulators:

“For regulators, knowing the existence and the size of speculative flows is better than closing down the channel and knowing little about a black market.”

 

Follow Valentin on Twitter: @vxschmid

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Until now, most of the action has been taking place overseas, far away from American shores. But in an interconnected global economy and financial system, the China crisis is already impacting the United States and will soon impact you too—both positively and negatively.
Financial markets reacted first. China’s stock market is down 22 percent this year. Japan is down 14, Germany 16 percent, all of them extending their slump from 2015.
Relatively speaking, the United States is doing well—the S&P 500 is only down 9.3 percent. But even America won’t be able to save itself from the contagion of a Chinese economy on the edge of the abyss.
Growth in China has slowed to a number much lower than the official 6.9 percent. Capital is leaving the country by the hundreds of billions of dollars every month, the stock market is crashing, and the currency depreciating.
The Ghost of 1997
“There are worries about a rerun of [the 1997 Asian financial crisis] of a series of competitive devaluations,” says Sherle Schwenninger, director of the World Economic Roundtable at the think tank New America Foundation.
Whether competitive or not, almost all emerging market currencies from the South African Rand to the Turkish Lira and the Chinese renminbi are falling against the dollar, exacerbating a problem which started in China in late 2014.
Schwenninger says if emerging market currencies fall in value, dollar debt increases in value, which makes it harder for companies and countries to pay it back. And it’s not just China that has lots of it, $870 billion according to the Bank of International Settlements.   
Those two factors together, China and commodities, are both stimulative for the world economy and a central part of the adjustment to get away from the post crisis distortion.— Charles Dumas, Lombard Street Research

“The larger amount of corporate dollar debt is held by Asian economies and the Western exposure ripples through London Hong Kong and European banks. … The Hong Kong banks are heavily exposed to China’s state owned enterprises,” says Schwenninger.
“Deutsche Bank is a perfect example. They are knee deep in all that stuff,” says Jeffrey Snider, chief investment officer of Alhambra Investment Partners. Deutsche Bank shares are down 39 percent this year, a little more than the shares of Swiss bank Credit Suisse (-35 percent), which Snider says invested too much in its Fixed Income, Currencies and Commodities (FICC) division, or everything that is suffering right now. As a comparison, U.S. bellwether JPMorgan Chase & Co. is only down 13 percent.   
But the banks aren’t just exposed to corporate debt from Asia. The China slowdown has wreaked havoc among energy and commodity traders and producers alike.
Commodity Carnage
“There are systemic linkages to the international financial system. Major commodity firms may end up defaulting in 2016. This is coming to play out in the coming months as more and more cracks are appearing in the commodity complex,” says John Butler, head of wealth services at Gold Money.

Energy and commodity producers world-wide were counting on China to keep on growing 7 percent every year indefinitely and invested hundreds of billions to expand supply.
Once demand for commodities started slowing in China, prices for copper (down from $4.5 to $2.12 per pound since Jan. 2011) and iron ore (down from $180 per ton to $38 per ton since 2011) crashed. China is not alone responsible for the decline in the oil prices (West Texas Intermediate is down to $31 from a little over $100 in 2011) but this trend is also hurting producers and the banks who underwrote the loans to energy companies.
(IndexMundi)
“People were holding oil and copper and other things not because of good fundamentals but because they thought the returns there would be greater than in Treasurys and German government bonds. A lot of that money has come out of the market. Hedge funds have been delevering and liquidating their positions in the China growth story. You had the rush of money out, which creates a contagion effect,” says Schwenninger.
I think the idea is that you feel so smart and so wealthy because of appreciating asset prices that you are led to consume more. I think the empirical evidence for this wealth effect is very, very slight.— James Grant, Grant’s Interest Rate Observer

“There is a lot of bad collateral out there, there is a lot of junk debt that has been overvalued and it is going have to be written down,” says Butler.
Shares in British commodity trading companies like Glencore PLC is down 62 percent over the last year. The mining company Anglo American PLC is down 68 percent and announced it would fire tens of thousands of its work force.  
Multinational Impact
Even if U.S. banks for once are not exposed to the epicenter of the crisis, the fact that three large sectors of global multinationals (banks, commodities, and energy) are on the defensive means it has an impact on the earnings of U.S. multinationals as well.
“American multinationals who depend on global markets are going to be hurt competitively, and we have seen that show up,” says Schwenninger. Apple Inc. is down 11 percent in 2016, partly due to a bad earnings report, which blamed China for weak iPhone sales.
Apple’s share price year-to-date (Google Finance)
“We are coming off four or five quarters of negative earnings growth,” says Snider, who also believes the market has lost faith in central banks to fight off a global crisis. “It’s the idea of transitory. It’s all short term, don’t worry about it,” he says has been the mantra of global central banks the market has believed in so far, but not anymore. “The fact it has dragged on over a year, the idea of transitory and temporary weakness is no longer plausible.”
So how does this affect you? Unless you own a lot of stocks in general or the weak sectors in particular or you work for a shale gas producer, the whole China slow-down could actually have a positive effect on the consumer.
We are coming off four or five quarters of negative earnings growth.— Jeffrey Snider, Alhambra Investment Partners

It’s the exact opposite of

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I you believe the latest headlines, China’s trade data for December 2015 was really good. Exports rose 2.3 percent in yuan compared to December of 2014 and imports only dropped 4 percent.
This is good because exports collapsed 3.7 in November and the market expected imports to decline 8 percent. Investors like Shane Oliver at AMP Capital Investors Ltd. think this is a sign “the Chinese economy is stabilizing rather than collapsing.”
Unfortunately, this may be wishful thinking, as there are a lot of problems with these figures. For starters, the biggest contributor to the 3.5 percent increase in exports from November was Hong Kong with 40 percent.
Why is this a problem? While the mainland registered the increase in exports to Hong Kong, the special administrative region did not register the imports.
The cargo may have disappeared at sea, but a more likely explanation is that the mainland artificially boosted the numbers for exports, whereas Hong Kong reported imports more or less accurately.
(Bloomberg)
Goldman Sachs had this to say about the December numbers: “Readers are advised to take a grain of salt when interpreting the latest exports data as a sign of a change in growth momentum.” The analysts think local officials have an extra incentive to artificially boost exports approaching the end of the Chinese calendar year.
The local officials may have exported some goods earlier to meet the year end growth target or even resorted to shipping the goods back and forth to special trade zones.
This is common practice in China: “A poor villager can boast he has thousands of yuan of turnover every day, but people later discover he only has one bull—he takes the bull out every morning and brings it back every evening,” Lin Yongtai, a manager at a company offering these services told Bloomberg earlier. “The same applies to some parts of China’s foreign trade.”
But not only exports are problematic. Goldman thinks Chinese use imports to funnel money out of the country. “Imports data on the other hand are potentially subject to over-reporting by traders to facilitate FX outflows,” the analysts write. In that case an importer from China would get an invoice of $200 for $100 worth of goods to be able to transfer the balance to an overseas bank account and avoid capital controls.
While many Western observers were pleasantly surprised with the data, somebody in China didn’t buy it. It was the stock market, down another 2.4 percent Jan. 13 and closed just 22 points above the August 2015 low of 2927. 

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Because of its high growth rates, many people now call China the locomotive of global growth. Especially the International Monetary Fund thinks China contributes more to global growth than any other economy.
“We forecast China to contribute more than before to global output, even though growth is slowing. For exporters, this means China’s expanding market will continue to be a great source of future customers,” the IMF states. According to its calculations, China should add around 1 percentage points to world growth (around 4 percent) in the coming years.
However, the argument, like many in economics, is at least semantically flawed. It goes like this: China’s share of global GDP was 16.6 percent in 2014. If it grows 10 percent, it will add 1.66 points to the world total of 100, thus contributing 1.66 percentage points to global growth.
But this is only true if one sees all the different countries in the world as one, which some people say the IMF would like to see in the not too distant future.
If that was the case, a China growing at 10 percent would really add to 1.66 percentage points to the world total. At the time of this publication, however, there were still 188 different countries on the IMF’s members list.
The United States has to deduct its trade deficit with China from its GDP (U.S. Census Bureau)
And China in fact has subtracted growth from most of these countries by having run massive trade surpluses for two decades—close to $600 billion in 2015 alone.
This means China exports more to the world than it imports. According to the traditional formula of calculating GDP (Consumption + Investment + Government Spending + Exports – Imports), that’s a net negative for the rest of the world. For China the exports minus import part adds to GDP, for the rest of the world it subtracts.
In the case of the United States for example, its trade deficit in goods with China is $307 billion for the first 10 months of 2015. In other words, if China wasn’t there and the United States did not have to deduct $307 billion from a 2014 GDP of $17.3 trillion, its GDP would be 1.8 percent higher.
Looking at the world economy as a market where different sovereign nations compete, rather than the world economy as one whole entity, it is difficult to see how China is contributing to rest of the world growth, when it is actually taking away from the growth of most of its trading partners.

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When China reported another month of foreign exchange outflows Dec. 7, analysts were hoping trade numbers on Dec. 8 would be the saving grace. They were not.
Exports fell 3.7 percent in November, the fifth consecutive decline. Imports dropped 5.6 percent, the 13th consecutive decline. The drop in activity brought down the trade surplus to $53.5 billion. All three numbers came in below market expectations.
If China has a trade surplus, it means foreign exchange is flowing into the country to counteract outflows of capital.
If trade slows down further, the pressure on foreign exchange reserves and the currency will only get worse.
(Macquarie)
“A Lower trade surplus is one of the drivers of the fall in foreign exchange reserves … All else being equal, this combination of trade data tends to put more pressures on the yuan to depreciate,” Goldman Sachs writes in a note. 
So the weak trade data translated into a weaker yuan on Dec. 8. It fell 0.14 percent to 6.4172 a dollar, the weakest close since August 2011.
(Bloomberg)
Many analysts speculate a weaker Chinese currency could bolster exports.
“The yuan is the only major currency that is overvalued and Beijing is the only one that has not engaged in the currency war,” says Diana Choyleva, chief economist at Lombard Street Research.
Investment bank Macqurie, however, doesn’t think it will help much, because most of its competitors have devalued already. “It’s hard for China to use devaluation to grab more market share. It also means that China has to rely mainly on domestic demand to bolster growth,” it states in a note to clients.

However, sometimes bad news is good news, according to research firm Capital Economics. 
“The sharp fall in commodity prices at the end of 2014 along with the weakness in exports at the start of this year will soon provide a much more flattering base for comparison,” it states in a note. In other words bad data from the past will make for good data in the future. 
 

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