Asia's Challenge to the Global Economy

Amid the talk of deglobalization, China’s goods trade surplus has increased in size relative to China’s economy since 2019 and its manufactured surplus is now at all time high relative to the GDP of its trading partners. One often neglected reason for China’s large global trade surplus—and the associated bilateral surpluses with the U.S.—is its high underlying level of savings. The excess savings corresponds to a low level of consumption and a tendency to rely either on credit or exports to shore up growth. China is once again the large economy that relies most obviously on export for growth—and President Xi remains the world leader most reluctant to provide direct support for consumption. The risk of rising tensions tied to mutually incompatible policy goals and macroeconomic policies that put major economies at odds is thus rising. 

Moreover, as U.S. interest rates and the dollar normalize, the direction of foreign exchange market intervention could change. The Project on Asia’s Challenge to the Global Economy will track Chinese state bank intervention, as well as activities of large Asian central banks and sovereign funds, to understand the global economy and how global forces shape the U.S. fixed income market. The project will result in ongoing, detailed commentary on China’s balance of payments and intervention data, along with the currency policies of its neighbors, with an emphasis on drawing out what the data means for the U.S. and world economy. This work informs the work of major banks and it is often covered in the quality financial press.