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From FT Alphaville:
Beware the Chinese FX reserve fall
The latest from SocGen’s Albert Edwards features this eye-catching chart:...MORE
As he notes, the most under-covered Chinese stat of the month is undoubtedly the $100bn decline in China’s Q3 FX reserves, the largest quarterly fall ever:
As I have explained, this reflects deterioration in Chinese competitiveness from its excessively strong real exchange rate and a deteriorating of its balance of payments. If we have been warning that slower growth in FX reserves represents monetary tightening, then a decline of this order of magnitude is like a credit crunch! These data will ultimately prove to be more important than last Wednesday’s US retail sales. As I said two weeks ago “sell everything and run for your lives”.We’re not sure about selling everything and running for your lives (just yet), but we certainly agree that the key issue at hand is the market’s major misunderstanding about the renminbi’s real worth and why it is that the Chinese government doesn’t feel inclined to debase its way out of the problem this time around....
