SINOWEEKLYPLUS

Trump tweet may hold answer to Liu He’s U.S. trip; Two Sessions reports hint at Xi’s political position

SinoInsight 1
On March 7, President Donald Trump posted on Twitter: “China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States. Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”

OUR TAKE
If Trump didn’t make a mistake by tweeting “One Billion Dollar” (less than 0.3 percent of America’s trade deficit with China), then our earlier analysis of Politburo member Liu He’s visit to the United States may be accurate.

We wrote that Liu’s trip was not just about holding trade talks with American officials, but also to update the Trump administration on the implications of Xi Jinping dropping term limits for the presidency and what it means for bilateral relations.

SinoInsight 2
According to People’s Bank of China figures released on March 7, China’s foreign exchange reserves decreased by $27 billion to $3.1345 trillion at the end of February, the first drop in 13 months. Meanwhile, the dollar appears to be strengthening.

OUR TAKE
China’s FX reserves increase since the end of 2016 is actually a rapid increase in foreign debt. A significant portion of this debt is made up of Tesobonos short-term bonds. If the renminbi undergoes devaluation, the Tesobonos will become a time bomb, especially when the property markets are very pessimistic about Beijing’s deleveraging campaign.

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