Canada-China Trade Declines Ahead of PM Carney's Beijing Visit

Michael Ross

Data Interpretation

Political

Remarks of Officials

Economic

China–U.S. Trade War

Summary:

Canadian PM Carney in China amid falling trade, seeking to mend strained ties and assert strategic autonomy.

China's imports from Canada fell in 2025 for the first time since 2020, according to official data released just hours before Canadian Prime Minister Mark Carney’s scheduled arrival in Beijing. The figures underscore the economic leverage China holds as the two nations navigate a period of tense relations.

The high-stakes visit, the first by a Canadian prime minister since 2017, aims to mend a diplomatic rift that has strained economic ties.

Canadian Prime Minister Mark Carney travels to China for a high-stakes diplomatic visit aimed at stabilizing trade relations.

A Look at the Sharp Downturn in Trade

According to China's customs authority, Chinese imports from Canada dropped by 10.4% in 2025, falling to $41.7 billion. This marks a notable decline from the all-time high of $46.6 billion recorded in 2024.

The last time inbound shipments from Canada decreased was during the pandemic in 2020, when they fell by 22.3%. The trend isn't isolated to Canada; Chinese imports from the United States also slumped by 14.6% in 2025.

Carney's Mission to Repair Strained Relations

Prime Minister Mark Carney is expected to arrive in Beijing on Wednesday with a focus on narrowing the diplomatic divide. Relations soured significantly in 2024 after former Prime Minister Justin Trudeau mirrored the Biden administration's policy by imposing 100% tariffs on Chinese electric vehicles.

"I'm headed to Beijing," Carney announced on social media as he departed. "China is our second-largest trading partner, and the world's second largest economy. A pragmatic and constructive relationship between our nations will create greater stability, security, and prosperity on both sides of the Pacific."

The trip follows a positive meeting between Carney and Chinese leader Xi Jinping in South Korea in October. While that encounter did not result in major breakthroughs—Chinese tariffs continue to block Canadian canola from its largest market—both leaders agreed to move bilateral ties forward, leading to Xi's invitation.

The US Factor: Seeking 'Strategic Autonomy'

Canada's renewed engagement with China is also driven by a need to diversify its export markets. This comes after U.S. President Donald Trump imposed tariffs on Canada last year and made inflammatory remarks about the country's sovereignty.

Ahead of the visit, Chinese state media advised Carney to maintain "strategic autonomy" from the United States. An editorial in the state-run China Daily on Monday argued that Ottawa could better serve its interests by working directly with Beijing to manage differences.

The outlet suggested that previous setbacks in the relationship were caused by the Trudeau government's policy of aligning with Washington's efforts to contain China, and that upholding strategic independence would help avoid similar outcomes.

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Oliver Scott

Remarks of Officials

Data Interpretation

Economic

Germany’s corporate landscape faced a severe downturn in 2025, as business bankruptcies surged to their highest level in two decades. The wave of insolvencies accelerated late in the year, casting a shadow over the economy despite government promises of a turnaround.

Figure 1: Germany's economy faced a historic wave of corporate insolvencies in 2025, reaching a 20-year peak and signaling significant financial distress.

The Scale of the Insolvency Wave

Data from the Leibniz Institute for Economic Research Halle (IWH) reveals a total of 17,604 corporate bankruptcies for the year. This figure translates to an average of 48 partnerships and corporations failing every day.

The institute noted that this total is approximately 5% higher than the number recorded during the 2009 financial crisis, highlighting the severity of the current situation.

The problem worsened significantly in the final month of the year. December saw 1,519 insolvency applications, a figure 75% higher than the monthly average for December between 2016 and 2019.

Jonas Eckhardt, an economic expert at the transformation consultancy Falkensteg, described the situation bluntly: "The German economy is no longer just struggling with headaches. She's got a fever. That won't change anytime soon."

Key Sectors Under Pressure

According to Professor Dr. Steffen Müller, Head of IWH Insolvency Research, the rise in bankruptcies was a broad-based phenomenon affecting the entire economy. However, certain sectors were hit particularly hard.

• Hospitality

• Construction

• Real Estate

Müller identified the interest rate increases at the end of 2022 as a primary factor, noting that higher borrowing costs stalled investment and expansion plans across these industries.

From Local Businesses to Large Corporations

The financial distress has impacted companies of all sizes. In Saxony, a sausage company was forced to dismiss its entire staff. In Lower Saxony, the Leifert bakery chain’s insolvency affected 220 employees, while the failure of another large bakery, Hansen Mürwik, impacted 145 workers.

Large corporations have not been immune. A survey by Falkensteg found that 471 companies with annual sales over €10 million filed for insolvency in 2025, marking a 25% increase from the previous year. The number of these major insolvencies has nearly tripled since 2021.

National Concerns and Broader European Woes

The escalating crisis has captured the attention of Germany’s leadership. Chancellor Friedrich Merz recently stated that parts of the German economy are in a "very critical state." While he did not specify which sectors, the automotive industry is widely seen as being under intense pressure, largely due to rising competition from Chinese manufacturers.

This economic strain is not unique to Germany. French President Emmanuel Macron recently traveled to China, telling leaders there that "European industry is facing a 'life or death' moment." Macron argued that China's trade surplus is "untenable" and warned that Europe may resort to tariffs if China does not adjust its trade practices to allow for more European imports.

The trip, however, concluded without any major business deals, and analysts widely viewed it as unsuccessful in achieving its primary objectives. In a notable observation, China has achieved its economic status with very low levels of immigration, with the total number of foreigners in the country comparable to the foreign population of the city of Berlin alone.

Outlook for 2026 Remains Grim

While some experts, like Professor Müller, suggest that insolvencies can serve as a market adjustment mechanism to make way for more resilient companies, the immediate outlook is negative.

Jonas Eckhardt emphasized that for many medium-sized businesses, the current climate is no longer a simple downturn but a "question of survival." Experts do not foresee a recovery in 2026 and instead predict a further increase in bankruptcies, particularly among large companies.

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Risk Warnings and Disclaimers

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Dark Current

Data Interpretation

Economic

Energy

Commodity

China's crude oil imports surged to an all-time high last year, with official statistics showing an average daily intake of 11.55 million barrels. This amounted to a total of 557.73 million tons for the year, marking a 4.4% increase from 2024.

The momentum continued into the final month of the year, as December imports also set a new record. The daily average for the month hit 13.18 million barrels, for a total of 55.97 million tons.

Record Imports Challenge Demand Slowdown Narrative

These record-breaking figures cast doubt on the narrative that China's oil demand is entering a permanent decline driven by the electrification of its transport sector.

However, a significant portion of these imports did not fuel the economy directly but instead flowed into the country's growing strategic and commercial stockpiles. Despite this, China's strong purchasing activity has provided crucial support for global oil prices, helping to counteract production hikes from OPEC+ and persistent concerns over the global demand outlook amid uncertain U.S. trade policies.

The Real Driver: A Massive Stockpiling Strategy

The scale of China's oil stockpiling became particularly clear starting in March 2025. Frederic Lasserre, global head of research and analysis at commodity trading firm Gunvor, highlighted an "impressive rate of stockpiling, like close to one million barrels per day" around that time.

Lasserre anticipates that China will continue building its crude reserves well into 2026. He noted that the country's storage facilities are only about 60% full, suggesting significant capacity remains for further inventory accumulation.

Building for the Future: Expanding Storage Capacity

To support this long-term strategy, China is aggressively building out its storage infrastructure. A total of 11 new storage sites are planned for construction across the country over 2025 and 2026.

Key details on the expansion include:

• Total New Capacity: The new sites will add a combined storage capacity of approximately 169 million barrels.

• Import Equivalence: This volume is equal to roughly two weeks' worth of China's crude oil imports.

• Historical Context: This follows the addition of between 180 and 190 million barrels of new storage capacity between 2020 and 2024, according to data from Vortexa and Kpler.

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Gerik

Forex

Economic

Election Speculation And Renewed Pressure On The Yen

The Japanese yen fell to its weakest level in a year and a half on Wednesday, reflecting heightened investor sensitivity to domestic political uncertainty. Reports suggesting that Prime Minister Sanae Takaichi may call a snap lower house election on February 8 revived expectations of potential fiscal expansion, a scenario that often coincides with concerns over higher government spending and increased debt issuance.

During trading, the yen declined as much as 0.2 percent to 159.45 per dollar, marking its weakest point since July 2024. Although the currency later recovered modestly, it remained under pressure, last trading near 159.215 per dollar. The movement underscores how political developments can influence currency markets through expectations about fiscal direction rather than immediate policy actions, a relationship that is primarily correlational but reinforced by market precedent.

Bond Auction Signals Investor Caution

Pressure on the yen intensified following a lackluster auction of five-year Japanese government bonds. Demand at the auction was described as cautious, with investors seeking higher yields and refraining from aggressive positioning. According to Mizuho’s chief desk strategist Shoki Omori, bidding reflected unease linked to possible dissolution of the lower house, concerns about fiscal expansion, and elevated market volatility.

The subdued response to the bond sale suggests investor hesitation toward increased government borrowing, especially in an environment where fiscal policy uncertainty is rising. While weak auction demand does not automatically translate into currency depreciation, it often coincides with softer sentiment toward government assets, reinforcing downward pressure on the yen through correlated risk perceptions.

Approaching Intervention Territory

As the yen edges closer to the psychologically significant level of 160 per dollar, market participants are increasingly alert to the possibility of intervention by Japanese authorities. Analysts at DBS noted that while verbal warnings remain the primary defensive tool, the absence of clear guidance regarding the timing or scale of any intervention continues to sustain speculative pressure against the currency.

This dynamic illustrates how uncertainty itself can amplify currency weakness. Without explicit signals from policymakers, traders tend to test perceived tolerance levels, particularly when momentum favors further depreciation.

US Dollar Stability And Federal Reserve Expectations

The yen’s weakness unfolded alongside relative stability in the US dollar, which held near a one-month high. US inflation data for December showed consumer prices rising 0.3 percent month-on-month, broadly in line with expectations. This reinforced market consensus that the Federal Reserve will keep interest rates unchanged at its next meeting later in January.

Fed funds futures now imply a 98.3 percent probability that rates will remain on hold, up from 95.6 percent the previous day. Support for Federal Reserve independence from global central bankers and senior Wall Street executives further stabilized dollar sentiment, even amid political rhetoric questioning the institution’s autonomy. Analysts emphasized that as long as inflation remains contained, indirect challenges to Fed independence are unlikely to trigger major market disruption, reflecting a causal link between inflation control and policy credibility.

Global Currency And Risk Asset Movements

Elsewhere in currency markets, volatility remained subdued during early Asian trading. The US dollar index was steady at 99.154, while the dollar traded flat against the offshore Chinese yuan at 6.9752, following data showing China ended the year with a record trade surplus of nearly 1.2 trillion dollars.

The Australian and New Zealand dollars both gained around 0.2 percent, while the euro remained flat and sterling edged slightly higher. In digital asset markets, risk appetite appeared firmer. Bitcoin rose 1.4 percent to 95,390.91 dollars, its highest level in two months, while ether surged 4.2 percent to 3,342.43 dollars, the strongest level since mid-December.

Overall, the yen’s decline highlights the sensitivity of foreign exchange markets to political and fiscal expectations. While no immediate policy shifts have occurred, speculation around elections, fiscal expansion, and bond market demand has combined to weaken sentiment toward the currency. Whether this pressure persists will depend less on short-term headlines and more on how clearly Japanese authorities communicate their fiscal and monetary intentions in the weeks ahead.

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Gerik

Economic

A Regulatory Shift Toward Stricter Risk Containment

Chinese regulators have moved to tighten risk management in domestic equity markets by increasing the minimum margin financing ratio to 100 percent. Under the new rule, investors must now provide collateral equal to the full value of securities purchased with borrowed funds, compared with the previous threshold of 80 percent. The policy applies uniformly across the Shenzhen, Shanghai, and Beijing stock exchanges, highlighting a coordinated regulatory response rather than a localized adjustment.

This decision reflects regulators’ growing sensitivity to leverage accumulation during periods of rising market optimism. By raising the margin requirement, authorities effectively reduce the scale of positions investors can take without committing additional capital. The mechanism is direct in design, as higher collateral requirements mechanically constrain borrowing capacity and reduce leverage embedded in equity trading.

Leverage Dynamics And Market Behavior

The higher margin threshold does not eliminate margin trading activity among local funds and retail investors. Instead, it limits the extent to which investors can amplify exposure using borrowed money. As a result, speculative positioning becomes more capital-intensive, particularly for investors who rely heavily on leverage to enhance returns.

Regulators have historically adjusted margin financing rules during phases of accelerated buying or when signs of excessive risk-taking emerge. In this case, the timing coincides with a strong start to the year for Chinese equities, supported by renewed risk appetite linked to the country’s technological progress. Margin loans had increased sharply, and trading turnover reached record levels, indicating a strong correlation between rising optimism and expanding leverage.

Immediate Market Reaction And Investor Sentiment

The announcement triggered a swift market response. Chinese equities reversed earlier gains, with the CSI 300 Index erasing a 1.2 percent advance after markets reopened from the mid-day break. This reaction suggests that a portion of the recent rally had been supported by leverage-sensitive positioning rather than purely long-term capital allocation.

The link between the policy change and the market pullback is primarily causal in structure, as the sudden tightening of margin rules directly altered trading constraints and investor expectations. However, the magnitude of the decline also reflects broader sentiment dynamics, as markets recalibrate assumptions about regulatory tolerance for rapid asset price appreciation.

Balancing Market Growth And Financial Stability

The move underscores a familiar tension in China’s capital market governance. Authorities aim to support healthy market development while preventing destabilizing leverage cycles. Raising the margin financing ratio does not signal a rejection of equity market growth, but rather a recalibration of the conditions under which that growth occurs.

By requiring full funding for leveraged purchases, regulators reinforce the principle that market participation should be backed by genuine capital commitment. This approach seeks to temper short-term speculative surges without undermining the structural role of equities in capital formation. In doing so, policymakers continue to prioritize financial stability as a core objective, even during periods of improving market confidence.

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John Adams

Commodity

Political

Remarks of Officials

Forex

Economic

Central Bank

Daily News

The Bank of Thailand (BOT) expects the nation's economic growth to turn positive in the fourth quarter of 2025, but the central bank must be careful about deploying further interest rate cuts, according to Deputy Governor Piti Disyatat.

"We expect the fourth quarter (gross domestic product) to be positive quarter-on-quarter," Piti stated, highlighting that this metric offers a clear view of near-term momentum. He affirmed that Thailand is on track to meet its annual growth forecast of 2.2% for 2025.

Bank of Thailand Deputy Governor Piti Disyatat discusses the nation's economic outlook and the central bank's policy constraints.

If this forecast holds, Southeast Asia's second-largest economy would sidestep a technical recession after contracting by 0.6% in the third quarter—its first decline in 11 quarters. The BOT projects growth will moderate to 1.5% this year before accelerating to 2.3% in 2027.

Inflation and Monetary Policy Outlook

Piti also anticipates that headline inflation will return to positive territory by March or April of this year. This follows a period of deflation, with annual headline inflation remaining negative for eight consecutive months through November. According to a Reuters poll, Thailand's December annual inflation is expected to be minus 0.34%. The central bank has forecast an average inflation rate of negative 0.1% for 2025, rising to 0.3% in 2026.

In response to economic conditions, the BOT has been active, lowering its key interest rate five times since October 2024. These moves brought the rate down by a total of 125 basis points to 1.25%. Market participants, according to LSEG data, are pricing in at least one more rate cut in February.

However, Piti signaled a more cautious approach ahead. "We are already running low on the policy space (and) have to be very judicious in using that room when the impact is most needed," he said. He assured that the BOT would use its "remaining ammunition" to counter potential shocks from tightening global financial conditions, deteriorating global markets, or a further slowdown in domestic demand.

Managing Baht Volatility and Gold Trading

A volatile Thai baht has compounded the country's economic challenges. The currency surged 8% in 2025, making it Asia's second-best performer but adding to headwinds for the economy. Other significant pressures include:

• U.S. tariffs

• Thailand's high household debt

• A border conflict with Cambodia

• Political uncertainty ahead of a February election

The baht's sharp movements prompted the central bank to intervene heavily in the currency market during the second half of 2025. Piti clarified that the BOT does not target specific baht levels. "Our main focus is to make sure (baht) volatility is not excessive and doesn't get too driven by non-fundamental factors," he explained.

To further manage the currency, the finance ministry is considering a tax on online gold transactions and measures to limit trading volumes by major players. While traders have opposed these steps, fearing they could diminish Thailand's role as a gold trading hub, Piti framed the objective differently.

"It's not like we're trying to kill off all gold trade. We just try to reduce the amount of gold trading that is excessive in baht," he said. The central bank's goal is to encourage dollar-denominated gold trading to lessen the impact on the local currency. The BOT estimates that gold transactions by large traders will be equivalent to 50% of the country's 2025 GDP.

This focus on gold comes after the precious metal rallied 64% in 2025—its largest annual increase in 46 years—driven by geopolitical tensions and expectations of U.S. rate cuts. Market analysts now foresee gold potentially reaching $5,000 per ounce in 2026.

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Gerik

Economic

Short-Term Volatility And The Broader FDI Picture

Although global financial conditions became more volatile in the second half of 2025, Vietnam’s ability to attract international investment is expected to remain broadly intact in 2026. Speaking at the Data Talk program on macroeconomic trends for 2025–2026, Tran Ngoc Bau, CEO of WiGroup, emphasized that Vietnam’s FDI outlook continues to follow a positive trajectory rather than a cyclical downturn.

According to his assessment, foreign capital flows into Vietnam can be broadly separated into two distinct categories. One group consists of short-term, opportunity-driven capital that seeks interest rate differentials and rapid returns. The other represents long-term investment capital that evaluates structural factors such as economic growth potential, political stability, and Vietnam’s evolving position within regional and global production networks.

Speculative Capital And The Normalization Of Risk Factors

For speculative capital, the most significant risks in recent periods stemmed from negative interest rate differentials and heightened domestic and geopolitical uncertainties. These conditions contributed to capital volatility during 2025. However, moving into 2026, these pressures are widely viewed as having eased. As risk perceptions stabilize, the probability of a gradual return of short-term capital improves, although such flows remain inherently sensitive to global financial conditions. The relationship here is largely correlational, shaped by shifting risk sentiment rather than structural policy changes.

In contrast, long-term investment capital continues to view Vietnam as a compelling destination. Political stability, consistent economic growth prospects, broad social consensus around development goals, and tax incentive policies form the core of this appeal. Tran Ngoc Bau stressed that the slowdown in registered FDI observed in the latter half of 2025 should be interpreted as a temporary adjustment rather than a weakening of Vietnam’s competitive position. Over the medium to long term, Vietnam’s capacity to attract global capital remains firmly in place.

This perspective highlights an important distinction between cyclical investment pauses and structural investment decisions. While registration volumes may fluctuate, the underlying commitment of multinational firms tends to follow longer planning horizons linked to production capacity, market access, and supply chain resilience.

Geopolitical Realignment And Supply Chain Shifts

Reinforcing this view, Nguyen Duc Hai, Senior Investment Director at Manulife Investments Vietnam, pointed to global geopolitical dynamics as a decisive factor shaping capital flows. Increasing polarization and strategic separation between the United States and China are accelerating supply chain realignment. As firms seek to diversify manufacturing bases and reduce concentration risks, Vietnam has emerged as a strategically attractive alternative.

In this context, Vietnam’s relevance is not solely derived from cost competitiveness. It is increasingly connected to the demand structure of major economies, particularly as the United States looks to secure alternative supply sources to meet large import needs. The link between geopolitical fragmentation and supply chain relocation reflects a causal mechanism, as strategic policy shifts directly influence corporate investment decisions.

Institutional Credibility And Trade Integration

Beyond supply chain positioning, Nguyen Duc Hai emphasized Vietnam’s cooperative stance toward international partners. Compliance with evolving US regulations, gradual market liberalization, and improvements in export transparency have strengthened institutional credibility. These elements contribute to investor confidence by reducing regulatory uncertainty and enhancing predictability in cross-border trade relationships.

Vietnam’s commitment to free trade further reinforces this credibility. With a network of 17 signed free trade agreements, the country stands out in the region for its depth of trade integration. This framework expands market access for investors and lowers structural barriers to cross-border production and distribution.

Market Access, Demographics, And Investment Horizons

From an investor perspective, the decision to allocate capital to Vietnam extends beyond domestic market size. The country’s manufacturing capacity and high degree of integration into global trade networks allow firms to access international markets efficiently. Complementing this is a young demographic profile and a sizable labor force expected to remain available over the next 10 to 15 years. These factors collectively strengthen Vietnam’s long-term investment appeal, with their influence operating through correlation with productivity and scalability rather than immediate output gains.

Based on these conditions, Nguyen Duc Hai concluded that long-term investment flows, particularly FDI, retain substantial growth potential. Short-term speculative capital may continue to experience sharp fluctuations, but it is not a strategic priority for Vietnam due to its potential impact on exchange rate volatility and financial market stability. The policy preference for stable, long-term capital reflects a causal relationship with macroeconomic resilience, as sustained investment supports productive capacity without amplifying financial fragility.

Overall, Vietnam’s FDI outlook for 2026 remains anchored by structural strengths rather than short-term market movements, positioning the country as a continued beneficiary of long-horizon global capital reallocation.

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