It seems increasingly unlikely that exports can offset the weakness of domestic demand. Today's export data for August weren't strong. Volumes might be better, but the regional export cycle is likely peaking, and that at a time when China's domestic demand seems to be weakening further.

MoM core CPI fell again in August, and while perhaps a bit too early to pronounce that China is definitively in core deflation, it is getting close. PPI deflation also worsened, and the leads suggest that will continue. Despite stronger food prices, it is likely interest rates continue to fall.

Last week I gave a short conference presentation updating the framework I've been using to think about China today versus Japan in the 1990s. The slides focus on deflation, manufacturing, currencies, and household consumption.

Rather than thinking a weaker USD will be a catalyst for a stronger Chinese cycle, we worry more that a stronger CNY means even more downside risk, being another reason to conclude that the muddle through of the last 18M is running out of road.

The PMI for mfg fell further in August, and while for non-mfg it ticked up, the details across the surveys were soft. The drops in input prices and jobs were particularly noticeable. Maybe the Caixin PMI sends a different message, but today's data show a cycle that is starting to deteriorate again.

Yesterday, officials claimed high-tech industry contributed 60% of the aggregate rise in industrial earnings through July. That's partly because profitability in heavy industry is so poor. Even then, overall profits still only rose 4%. New sectors still aren't strong enough to really lift the whole.

Just as inflation concerns ease elsewhere, there's an acceleration in China. Food prices have risen 7% YoY in August, the biggest rise in more than 2 years. However, while that complicates the deflation narrative, it isn't enough to change it, given a renewed fallback in PPI and weak M1.

A chart-heavy note looking at some of the broader trends in China's foreign trade. Exports have been reasonably strong, but no more robust than they were before covid. The bigger change is in imports, which are weak, a trend that protectionism elsewhere will do nothing to resolve.

Rather than industrial policy, the better explanation for weak corporate finances is deficient domestic demand. Related to that, the biggest shifts since covid haven't been in export growth or PPI, but in imports and core CPI. Macro policy doesn't suggest this weakness is set to change.