The Current Round Of Devaluation Is Crucial.

In the past two years, how did the exchange rate anticipate the "turning around" phenomenon in the past two years? What is wrong with the statistics, whether the market is wrong, or the traditional cognitive mistake? To clarify this issue is important for us to understand the devaluation of the current RMB.

In mid 2014, foreign exchange reserves and RMB exchange rate are expected to usher in a turning point.

Since the second half of 2014, China's official foreign exchange reserve has ended the pattern of "increasing and decreasing", and has started a sustained decline. At the same time, the RMB exchange rate is expected to "rise to decline", and the upward trend of depreciation is expected to be expected on the shore and offshore exchange rate. Although the depreciation rate of the exchange rate is small, the "devaluation pressure" always exists. This pressure was particularly evident during the "811 exchange reform" in 2015 and the "intermediate price adjustment" in early 2016.

However, the trade surplus continues to be strong and frequent.

From the change of trade surplus, we did not observe a similar inflection point.

Since 2011, China's trade surplus has continued to expand, with a monthly surplus of nearly US $50 billion in 2015, which is 1.5 times that of 2014 and 3.8 times that of 2011.

Why is the fundamental change decoupled from the market trend? The trade surplus can be regarded as the "Fundamentals" of the RMB exchange rate. The huge increase in trade surplus has a clear departure from the trend of RMB exchange rate and foreign exchange reserves, which is like a departure from the stock market's performance and share price, which is worth our consideration.

Generally speaking, the situation of foreign trade is closely related to the exchange rate of a country. The change of capital flow or investor sentiment and preferences may lead to the two stages of deviation, but it is difficult to explain the continuous divergence.

In the past two years, how did the exchange rate anticipate the "turning around" phenomenon in the past two years? How did it happen? Is it wrong with the statistics, the market is wrong, or is the traditional cognitive mistake? To clarify this issue is very important for us to understand the current RMB devaluation.

Questions about trade data.

When statistics differ from "market interpretation", the first question we need to verify is whether the market is doubting the authenticity of statistical data.

In other words, is the expanding trade surplus a reflection of the real situation, or is it merely a "statistical illusion"?

We found that China

There are mainly two types of projects which are "suspicious".

First, the "export to re import" part.

"Export re import" means that some of the goods have been exported from China, but eventually they have been relocated through the import channels.

The early "export re import" was caused by unexpected situations such as the failure of product quality to be returned, and the proportion of imports accounted for a small proportion (about 2%).

However, this proportion has continued to rise after 2000, and is now close to 8%~10%, which is clearly beyond the scope of "unexpected circumstances".

We have reason to suspect that this part of the import and export activities are adulterated with "non trade motives".

The two is the "suspected false" part.

Compared with other macro data, one advantage of trade data is that countries will conduct separate statistics and cross comparison.

Take China and the United States for example, the amount of imports from the United States has been higher than China's announced exports to the United States.

Of course, this difference is mainly due to the difference of statistical caliber. (see the Ministry of Commerce's "China US trade in goods statistics discrepancy Research Report"): (1) the US statistics "import from China" not only includes China's direct impact on the US.

It also includes China's exports to the United States through re exports such as Hongkong, while China's statistical "export to the US" includes only the former; second, the amount of import is calculated on the basis of CIF, which includes freight and insurance premiums on the way itself, which is about 10% higher than the export amount (FOB).

However, after excluding these "interpretable" parts, there is still a discrepancy between the statistics of different countries. We have reason to guess that it contains "false" elements.

In order to estimate the "real trade surplus", we need to amend the above questions.

We have made the following adjustments to the import and export data released by the General Administration of Customs (for the simple period, here only general ideas): (1) assume that the part of the "export re import" is based on the "non trade motive", which is deducted from the total export amount and import amount; second, assuming that the data released by the main trading partners are more reliable, we can find out the "residual items" which can not be explained by statistical differences by comparing the bilateral data, and accordingly estimate the imports.

The "false report rate" is eliminated from the export sum and import amount, respectively. (3) taking into account the particularity of "China and Hong Kong Trade", the bilateral data of China and Hongkong, China, are compared separately, and the "port data" is more credible, and the differences of the data are removed from the export amount and the import amount.

It needs to be explained that the "interrogative items" excluded from our import and export amount do not all correspond to those "non trade motives" behaviors, which also contain statistical difficulties such as "pportation lag" and "exchange rate conversion".

Just because of the "prudence" consideration, we have deducted all these items. In fact, we may underestimate the amount of "real import and export" to a certain extent.

Further, after calculating the share of China's exports in the world, we can see that the trend is still rising (Figure 4), which means that the comparative advantage of "made in China" still exists.

From this point of view, it is reasonable for the official repeatedly to mention that "there is no foundation for a significant depreciation of the renminbi".

The revised data show that the trade surplus has only slightly overestimated in recent years.

According to our estimate, we can find that: 1. The official surplus has slightly overestimated since 2013, but the deviation is not big. The overestimated extent in 2014 and 2015 is 1.4% and 3.5% respectively.