Having narrowed recently, the trade surplus is widening again. Why? According to China’s own data she has been using stores of food and metals. Copper imports are slightly up from the prior month (but remember the prior month was very low for copper imports due to draining her stores – note copx price very high again – see below on copper). China creates surpluses so rapidly she needs to add significantly to stores to avoid a rising surplus.

China is struggling with inflation. On the latest data 6.4% annually. (Slightly surpassing even the UK’s inflation rate). China is caught between accumulating ever debasing USD reserves, inflation and being called a currency manipulator. She desires and needs real assets for her USDs but she doesn’t want to see domestic inflation take off. A difficult balancing act therefore and underlines why the Chinese have been diversifying into the euro of late in spite of the issues in euro land.

http://www.bloomberg.com/news/2011-07-10/china-s-june-trade-surplus-reaches-22-27-billion-customs-bureau-says.html
Interestingly the world’s largest creditor nation can’t sell her government debt in bond auctions.. In this paradoxical world the largest debtor nation of the world sees well oversubscribed debt auctions..

http://gulfnews.com/business/banking/china-debt-sale-fails-for-third-time-this-year-1.835372

Copper perspective

http://www.bloomberg.com/news/2011-07-10/china-june-copper-imports-rise-first-time-in-three-months.html

And the big news last week was China’s latest rate rise a week or so after their premiere stated they had ‘crushed’ inflation

http://uk.reuters.com/article/2011/07/07/china-economy-rates-idUKL3E7I705F20110707

rich

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