Monthly Archives: December 2008

Season’s Greetings And A Short Break

This Bystander is taking a break and so CB will be updated only occasionally, if at all, until the first week of January. Best wishes of the season to you.

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Latest U.S.-China WTO Trade Dispute Baffles

There is a certain ritual to complaints to the World Trade Organization. And like many rituals its meaning can be opaque to outsiders.

The WTO action the U.S. instigated on Friday against China falls into that class. Washington alleges that Beijing is using export subsidies to promote Chinese-branded exports through cash grant rewards for exporting, preferential loans for exporters and payments to lower the cost of export credit insurance, all in contravention of WTO rules. China said on Sunday that its so-called Famous Brands program operates within WTO rules.

There is a certain irony in the fact that the U.S. Trade Representative announced the action the same day her colleagues in another part of the Executive Branch were announcing that $17.4 billion of taxpayer funds to bailout financial institutions would be used to prop up U.S. carmakers. But we digress.

The timing of the trade action is confusing, though it has been in the making in Washington for at least the past nine months. The current U.S. administration is done in a month. So while it has kicked off the process with a formal request for dispute settlement discussions, it will be up to the new administration to decide whether to take the next step, should those discussions go nowhere, as is usually the case. WTO rules allow the two sides 60 days to resolve the dispute between themselves, before one or the other can call for the case to go to a dispute settlement panel.

At the same time the action comes a couple of weeks before U.S. quotas are removed on January 1 on Chinese textile and apparel products.  So President-elect Obama, who promised to be tougher on China on the campaign trail, has two potential tests of his free-trade resolve in his early weeks.

Whether that is the intention behind this latest action this Bystander frankly has no idea. But what he does know is that this is no time for protectionism to rear its ugly head — in either country.

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China Steps Out Despite All

Amid all the handwringing over the seriousness of the slowdown of the economy, two pieces of the other side of China.

One: Beijing has offered financial assistance to help Taipei cope with the impact of the global economic crisis and has proposed broader financial links, which would be another step in restoring government-level talks.

Two: a pair of Navy destroyers and a supply vessel will head for the Gulf of Aden on December 26 to protect merchant ships from attacks by Somali pirates. The ships will join warships from the EU, U.S., India, Russia, Malaysia and seemingly now Iran.

Steppin’ out.

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Filed under Politics & Society, Taiwan

Tax Cuts And Other Pre-Stimulus Stimuli Coming In New Year?

Does China need a pre-stimulus-package stimulus package? The notion is gaining ground among economists who think that the 4 trillion yuan boost announced in November will take too long to kick in, given the unexpectedly rapid slowdown in the economy. That is focused on infrastructure spending, by definition a longer term boost to the economy, even if officials have a list of local shovel-ready projects to get underway.

In the short term, it is being argued, tax cuts and other measures to boost consumption and help the poor may be what is needed. There is enough whispering about this being discussed in policy-making circles to suggest a number of measures to that effect, such as raising the income tax threshold and issuing shopping coupons as Japan and Taiwan have done,  will be announced in the New Year.

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China Deters Foreigners From Selling Bank Stakes

Bloomberg is reporting that Bank of America’s plan to sell $2.8 billion of shares in China Construction Bank that was pulled at the last minute on Dec. 15 was done so because of a securities law provision that would have required it to forfeit the profits on the sale.

China’s securities law bans investors holding more than 5% of a locally incorporated, publicly traded company from selling shares within six months of buying the stock. Not that such a law is on the statutes by happenstance, of course.

Bank of America first invested in China Construction in 2005, taking a $3 billion pre-IPO stake. It put in another $1.9 billion last June, and a further $7 billion in November, by exercising an option that was part of its first deal in 2005. That took BofA’s stake to 19.3% and gave it an estimated paper profit of $15 billion.

BofA needs to raise cash to recapitalize its balance sheet. But China doesn’t want strategic stakes in its banks traded like baseball cards, and it may have an eye on the end of the lock-ups next year for foreign investors in Bank of China and Industrial & Commercial Bank of China. Hence the law, which applies to shares of China-incorporated firms traded in Hong Kong as well as on the mainland exchanges.

Nor is it afraid to use it. Martin Currie Investment Management, a Scottish money manager, had its local bank deposits frozen by a Chinese court in June after selling part of its 5.9% stake in Nanning Sugar Manufacturing just five months after acquiring it.

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New Fuel Tax Introduced With Offsetting Price Cuts

The long-anticipated fuel tax rise has come into effect, with, as expected, an offsetting cut in gasoline pump prices.

The National Development and Reform Commission has announced that fuel consumption tax will increase from 0.2 yuan a liter to 1 yuan a liter on gasoline and from 0.1 yuan  a liter to 0.8 yuan a liter for diesel.  At the same time, the retail price of gas has been cut by 0.91 yuan  per liter, and of diesel by 1.08 yuan, as of midnight Thursday.

Corresponding tax rises and price cuts for commercial gasoline and diesel and jet fuel were announced the day before to take effect on January 1st. Six categories of tolls for road and waterway maintenance and management will be scrapped the same day.

The changes are part of a drive to make China’s energy use more efficient through market based pricing, but the actual impact will be small to start with. No chances are being taken with depressing demand given the overall economic slowdown.

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China Confirms It Will Send Anti-Piracy Warships

An update to yesterday’s post about China considering sending warships to fight piracy off the coast of Somalia:  Bloomberg is reporting that the Foreign Ministry has confirmed preparations are in hand, without giving details of what vessels will be sent.

Piracy against Chinese ships seems more prevelant than thought. A ministry spokesman said that in  the first 11 months of the year, 1,265 Chinese commercial ships passed through Somali waters, or about three to four a day, a fifth of which were assaulted by pirates.

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30 Years Of Opening Up To The World

It is 30 years to the day that the 3rd Plenary Session of the 11th Communist Party of China Central Committee opened, a meeting that would usher in the opening of China under Deng Xiaoping and see the closing of the unhappy chapter of China’s history that was the Cultural Revolution.

It may be difficult for anyone under 30 to grasp how great the transformation of the country and the economy has been over those three decades. President Hu Jintao held a celebration of the anniversary in the Great Hall of the People in Beijing (CCTV video here), though he might have preferred for such an event to be held against a backdrop other than the worst  global economic slowdown in living memory.

China Daily has the official history of the watershed event in this special report. For a different view, try Forbes‘ four-part series keying off the anniversary by Gordon C. Chang, author of “The Coming Collapse of China”.

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China Considering Sending Warships To Fight Somali Pirates

Beijing is considering joining the international effort to tackle piracy off the coast of Somalia, or at least send warships to the area following an attempted attack on a Chinese ship on Wednesday. Chinese sailors and helicopters from the new EU anti-piracy force beat off the attack on the China Communications Construction Co. vessel, Zhenhua 4.

More than 120 ships have been attacked for ransom so far this year in what are some of the world’s busiest commercial shipping lanes. Deputy foreign minister He Yafei raised the possibility of sending navy vessels to the pirate infested Gulf of Aden at a ministerial meeting of the U.N. Security Council, Xinhua reports.  Were it to happen, it would be an unprecedented display of naval power for modern China so far from its shores.

Piracy closer to home is familiar to China, as this snapshot of a map from the International Maritime Bureau, which tracks piracy incidents, shows.

Snapshot of IMB Piracy Map, Dec 2008

Snapshot of IMB Piracy Map, Dec 2008

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China Loses Its First WTO Case

China’s appeal against the World Trade Organization’s ruling in July that it was imposing discriminatory taxation on imported U.S. auto parts has failed. The WTO Appellate Body upheld the original ruling that China is violating trade rules by requiring automakers operating there to buy most components from local suppliers or face higher duties. This is the first case China has lost since joining the WTO in  December 2001.

The full report of the WTO’s decision is here (.pdf: and a whopper, 123 pages). A  summary of the findings is here.

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