Involving: how people may be smuggling money into China; and why a Cypriot exit from the Euro might be halfway done already.

Good morning

The headlines:

  1. China’s magnificent export figures.

    Link: data integrity much?

    China has announced its monthly trading figures, and it seems that exports are a little less than anticipated. And the sticking point for data integrity: a 92.9% jump in exports to Hong Kong!

    Lower than expected overall exports… Falling global demand… But Hong Kong exports have doubled? While Hong Kong is reporting lower imports from China.

    The explanation being pushed by the Chinese government is “differences in statistical methods”. Which sounds very non-sinister.

    An alternative: what about people wanting to get money into China for all the good property deals (so I’ve read)? Direct investment involves capital control permission. But paying for an order – well that’s not quite the same thing. You inflate an invoice; and presto – investment in, no capital control issues.

    The alternative was in this article. Fascinating.

  2. Cyprus can leave the Euro.

    Link: an argument with merit?

    Whenever a new Mediterranean nation has a bailout, there’s someone in the woodwork that emerges with “maybe they should leave the Eurozone”.

    And usually, I would point straight back to the blog post that I wrote on the Grexit (Leaving the Euro: Such a Cost) and declare the idea a crazed one. But in the case of Cyprus, I’m not so sure that it’s such a bad idea.

    For one thing, the real issue around a Euro exit is that you would need to implement strict capital controls almost immediately to prevent a run on the banks. And you would probably have to force losses on depositors. Well, Cyprus is already doing both of those.

    The finance sector, as it was, has been destroyed. Which means that around half of Cyprus is left without an industry to support it. I mean – banking may only account for 9% of GDP; but think of all the services that are dependent on the status of Cyprus as a financial haven, like auditors, lawyers, bookkeepers and so on. Some estimates suggest that half of Cypriot GDP is dependent on that particular industry.

    If that finance sector is to be restored, then Cyprus needs to have some autonomy over both monetary and fiscal policy. At this point, I think that foreign investors see the current crisis as having been imposed on Cyprus by the Troika. If Cyprus can release herself from that control, then it’s possible that forgiveness will be swift. Especially when the underlying fundamentals (low tax regime, a skilled financial work base and reasonable political stability) are still in place and/or salvageable.

    Perhaps in this case, an orderly exit might just be the best thing. And clearly, the EU and the ECB have already decided that Cyprus is enough of a special case that they could violate depositor-holdings without causing contagion. So why not let them secede from the euro as well?

That’s all for now.

Have a good day.