China's economy is rapidly slowing: While treasury yields in the United States hit new 7-month highs, China's 10-year yield just hit a new RECORD low. In fact, China's 10-year government bond yield has now HALVED since January 2024.
What is happening in China?
China’s $11 trillion government bond market has moved into uncharted territory. As their government rolls out widespread stimulus, yields are hitting record lows. The gap between yields in Japan and China are now at a record low of just ~70 basis points. China is in trouble. https://x.com/KobeissiLetter/status/1873029178305724893
Meanwhile, yields in the US are skyrocketing with the 10-year now nearing 5.00%. The spread between China and the United States' 10-year yield just hit a record 294 basis points. Never in history has the spread been even remotely this large, with the average at ~100 bps. https://x.com/KobeissiLetter/status/1873029180809789748
Multiple indicators show a general slowdown of China's economy contributing to these moves. Increases in both industrial production and consumption have slowed significantly. In fact, retail sales growth is now at ~2% and on track to hit the lowest since the pandemic. https://x.com/KobeissiLetter/status/1873029183108202875
Simultaneously, China's central bank is buying gold like never before. China's gold holdings rose to 72.96 million fine troy ounces at the end of November. They now hold $193 BILLION worth of gold in reserves and continue to buy even as gold prices hit record highs. https://x.com/KobeissiLetter/status/1873029185335378270
On September 26, China began its largest stimulus since 2020: 1. Cutting reserve requirements by 0.5% 2. Cut 7-day RRP rate by 0.2% 3. Lowering mortgage rates 4. Injecting $142 billion into banks 5. Implement "forceful" rate cuts Still, the economy is experiencing deflation.
Since 2008, China's Debt-to-GDP ratio has more than doubled to 366%. This is TRIPLE the Debt-to-GDP ratio seen in the United States. Combine this with incoming tariffs in 2025 and China's economy is in need of a major restructuring.
Recent stimulus has not been enough. https://x.com/KobeissiLetter/status/1873029191589060984
Currently, China is facing its longest period of DEFLATION since 1999. Not even 2008 came with 5 straight quarters of deflation, as we are seeing now. While everyone is fighting inflation, China is dealing with severe deflation. This is arguably even worse than inflation https://x.com/KobeissiLetter/status/1873029194105663649
Furthermore, China's oil demand has collapsed. China's crude oil imports declined by 3.4% in the first 10 months of 2024, the largest drop since the pandemic. China has effectively reduced their crude oil imports by 411,000 barrels PER DAY. Oil producers are panicking. https://x.com/KobeissiLetter/status/1873029196374786275
China has even more uncertainty heading into 2025 than the US does. While the US deals with rebounding inflation, China will be dealing with deflation.
The wildcard for China in 2025 is President Trump's tariff policies. Electric vehicles have become a hot topic as China now controls 39% of the global auto market. Tariffs could send China into a recession. https://x.com/KobeissiLetter/status/1873029200078356754
