China facing big challenges

<p>Kia ora,</p><p>Welcome to Tuesday's Economy Watch where we follow the economic events and trends that affect New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news China is facing some substantial challenges.</p><p>China is in <a href="https://www.scmp.com/economy/china-economy/article/3139854/chinas-foreign-currency-deposits-pass-us1-trillion-banks-face" target="_blank"><strong>a tough spot</strong></a> with its currency. Too much foreign currency has built up domestically in their banks and their official reserves are high too. Previous attempts to use this funding for international investment has failed because the projects they invested in turned out to be largely poor investments. This build-up is putting hard upward pressure on the yuan exchange rate. These private reserves now exceed US$1.1 tln and growing fast (+35% in a year) and the public ones are a similar level (and fairly stable).</p><p>China is still in its week-long CCP anniversary celebration. But their PMI reports are not really helping the mood (nor would, if anyone was noticing). The <a href="https://www.markiteconomics.com/Public/Home/PressRelease/c6c1ee5b336046e1b3666362c46cae7b" target="_blank"><strong>private services PMI</strong></a> is recording a sharpish turn away from expansion to just a steady state and its tamest result for a year, just barely expanding now. That is much more of a pull-back than what <a href="http://www.stats.gov.cn/tjsj/zxfb/202106/t20210630_1818856.html" target="_blank"><strong>the official services PMI</strong></a> recorded. An under-reported pandemic spread there may be the cause.</p><p><a href="https://www.markiteconomics.com/Public/Home/PressRelease/179b30f2b8e243768f8ae64f6409b6b6" target="_blank"><strong>Japan's services PMI</strong></a> is actually contracting, but noticeably less now as they are getting to live with the latest pandemic outbreak.</p><p>There was <a href="https://www.markiteconomics.com/Public/Home/PressRelease/5fc3b2e