China hid a record trade surplus behind a pile of gold and somehow that's not even the wildest number today · Daily Briefing

In 30 seconds: Brad Setser argues China's true trade surplus is far larger than reported, as a surge in gold imports — effectively a financial transaction — has artificially suppressed the headline figure, with the gold-adjusted goods surplus now approaching record levels relative to global GDP. Semiconductor stocks are in a sharp rotation lower — with SpaceX losing $1.2 trillion from its peak and NVIDIA ceding the top market-cap spot to Apple — as investors grow increasingly concerned about AI capital expenditure sustainability and whether the AI buildout resembles a bubble. With odds of a Fed rate hike at Wednesday's FOMC meeting hovering around 36-38%, markets face an unusually high level of pre-meeting uncertainty not seen since the financial crisis, as hawkish wage data and inflation signals complicate the policy outlook. Chinese memory-chip maker CXMT soared 466% on its first trading day, reaching a $484 billion valuation and leaving an estimated $40 billion on the table in what analysts are calling one of the biggest IPO mispricings in market history.

One publication recently argued that China's trade surplus has peaked — but the analysis here runs exactly the opposite direction, finding the surplus is not just big but still growing fast. Gold imports are more of a financial account transaction than a trade transaction, which means China's reported surplus understates the true underlying goods and services surplus. Strip gold out and China's underlying goods surplus runs at about 7% of GDP, with the broader goods and services balance sitting at around 6% of GDP. China's underlying goods surplus (excluding gold) equals 1.5 percentage points of the GDP of all its trade partners, a record for any single country. China's true goods and services surplus (net of gold): approximately 6 percentage points of GDP. Gold: $4,084.60. Futures settled at $4,084.60 on 2026-07-27, 0.4179% higher on the day. China's gold imports in 2026 have seen a huge increase. IMF current account model estimated undervaluation: 16%. The RMB is clearly undervalued so long as the trade account is open and the financial account is not. The PBOC blocked depreciation pressure by keeping the fix fixed during bouts of pressure in 2023, early 2024, and again just after Liberation Day; since June of last year, the fix has set the direction and pace of the CNY's move against the dollar. Profits of foreign firms in China have fallen over time, particularly in the auto sector, while China's FDI abroad and foreign FDI in China are now roughly equal in value. The headline surplus number, in short, understates a problem that keeps getting larger.

The semiconductor trade has flipped violently. On a rolling one-month basis, semis went from averaging daily gains of 1.5%+ to daily losses of nearly 1%. On one particularly brutal session, semis dropped nearly 4% while software rallied 3%. Even NVIDIA $NVDA, the last semiconductor name holding up this month, has now turned red. SpaceX $SPCX market cap is down approximately $1.2 trillion from its peak just six weeks ago. Google stock down 7% the day after its earnings report. Google quarterly net income: $112 billion. The real economy data is not helping calm nerves in the way you might hope: core durable goods shipments are running at 11 percent annualized so far this year, but all of the growth was driven by computers and electronic products. The capex boom is real. Apple $AAPL holds a $130 billion market-cap lead over NVIDIA, while NVIDIA $NVDA is down 16% month-to-date.

Fed fund futures put the odds of a hike at 37.9%. Not high enough to price in, not low enough to dismiss. Markets, it turns out, do not enjoy coin flips. This level of pre-meeting ambiguity is genuinely rare. One of those was September 2024, but that uncertainty was about the size of a cut, not whether one would happen at all. Some analysts argue this marks the end of forward guidance, and that such uncertainty will be the norm going forward. Lorie Logan may sit on the hawkish end of the FOMC consensus, in part because wage growth in her district appears to be picking up. Oil prices are down 8% today. The interpretive problem is real: if the Fed hikes this week, is that bearish bonds because the Fed is more worried about inflation than we thought, or bullish because they are getting ahead of the curve? If only there was some way they could tell us. Through some form of forward-looking guidance, perhaps.

One trading day later, the stock had surged 466%, and the company was worth $484 billion. That is not a typo. The company left an estimated $40 billion on the table. At that closing valuation, CXMT became the most valuable company listed in mainland China, a remarkable achievement given the offer price implied a market cap of roughly $85.5 billion just hours earlier. Discovering a price that is off by 466% suggests the process discovered very little. CXMT: fourth largest. The broader question is what this says about the state of China's equity markets. A 466% first-day gain is not price discovery. It is a crowd of investors bidding against each other for exposure to a national semiconductor champion, with the offer price serving less as a valuation anchor and more as a formality. Whether the closing price proves any more rational is, of course, a separate question entirely.