Tag Archives: trade

Hu Woos Warily Welcoming Africa

Chinese President Hu Jintao addresses the opening ceremony of the Fifth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in Beijing, capital of China, July 19, 2012. (Xinhua/Li Xueren)

China is giving the triennial two-day ministerial Forum on China-Africa Cooperation in Beijing the full-court diplomatic press. President Hu Jintao, seen above addressing the gathering against a backdrop of African flags, promised to have doubled China’s credit lines for African governments to $20 billion by the time the meeting reconvenes in 2015. The idea is to reinforce the notion that the Beijing consensus model of development is better for the continent than the Washington one.

Many African leaders have sufficient concern about Western development aid, with its baggage of conditionality and legacy colonial perceptions, to make Beijing a preferred partner on large-scale development projects. But it is a pragmatic choice, not unalloyed affection. Chinese investment is concentrated in natural resources and infrastructure construction (and in a relatively few resource-rich African countries), while cheap Chinese manufactures and workers flood in. That raises concerns among African policymakers that China’s trade and investment doesn’t necessarily boost the continent’s overall capacity and competitiveness or its intra-continental trade. Growing popular unease over Chinese insularity, labour practices and immigration has led to local violence on several occasions from Algeria to Zambia.

Aware that it has an image problem, Beijing is countering these concerns with a diplomatic charm offensive, and, inevitably, a five-point plan. Hu promised to diversify and rebalance China’s Africa trade and investment, and to create more local jobs by supporting African manufacturing. This Bystander, for one, will believe it when he sees it.

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China’s May Trade Data Surprise Baffles

What is so surprising about China’s trade figures of May, released today, is not that they so outstripped  analysts’ expectations, but that both imports and exports seemed so strong. In raw value, they were record breaking. Exports rose 15% year-on-year, to $181.1 billion, with a significant rise in shipments to the U.S. and even a trade with the E.U. rebounding. May’s imports rose by 12.7% year-on-year to $162.4 billion. The monthly trade surplus edged up to $18.7 billion, $300 million higher than in April. In the first five months of the year, exports to the slow-growing U.S. rose by 12% and even those to eurocrisis-gripped Europe rose 1.3%.

The May trade numbers drive such a brilliant shaft of light through the gloom of the other economic indicators released in the past few days, that this Bystander wonders if they are simply an aberration, an ever-present risk with monthly data. Yet, they could also be a harbinger of a brake to the slowdown in growth that sparked the surprise 25 basis points cut in interest rates last week, an aggressive easing of monetary policy that saw higher than expected bank lending in May, and talk of a new stimulus package, albeit not one using the S-word. If that indeed is the case, more spending, by way of advancing planned social infrastructure spending, could remain in reserve.

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China’s Trade Figures Show Global Demand Slowing Not Collapsing

The one point to be made about China’s latest trade figures is that demand from developed economies has not collapsed, regardless of the fact that last year’s trade surplus, at $155 billion, was down from 2010’s $183 billion and the smallest since 2005. Year-on-year export growth in December was 13.4%, and even 7.2% from debt-struck Europe. Slowing growth rates, to be sure–November’s export growth was 13.8% y-o-y–but not contracting ones.

December’s increase in the monthly surplus from $14.5 billion to $16.5 billion was largely due to slower import growth, at 11.8% y-o-y, a 26-month low. Commodity imports were resilient. It was domestic consumers who kept their wallets shut, another reason for the recent priming of the credit pumps. The trade figures also provide inconclusive support to visiting U.S. Treasury Secretary arguments that Beijing needs to let its currency appreciate further against the dollar.

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China Trade Remains Robust

The August trade figures show that Chinese domestic demand is holding up well, allaying fears of a sharp slowdown in the economy. External demand, particularly in emerging nations, is also firm. China’s imports rose by 30.2% in August, year-on-year, and exports by 24.5%, cutting the country’s trade surplus to $17.8 billion from $31.5 billion in July. For the first eight months of the year, the trade surplus is only down 10% year-on-year, despite a trade deficit in the first quarter.

The question is whether those growth rates on both sides of the trade ledger can be sustained in the face of sluggish growth in Chinese exporters’ markets in the U.S. and Europe. On the face of it Chinese manufacturers are expressing optimism. Much of the rise in August’s imports was due to restocking of raw materials. Two consecutive months of strong import growth give China’s policymakers no reason to ease monetary policy. We still believe that stubbornly high inflation, still policymakers’ priority, make tightening more likely. In the meantime, the yuan will continue to be allowed to strengthen agains the dollar.

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China’s Diplomatic Push For Its Foreign Direct Investors

Prime Minister Wen Jiabao’s European tour provides a foretaste for the sort of diplomatic push in support of Chinese investment in developed countries that is only likely to increase over the next decade in line with Beijing’s extortion to Chinese companies to “go global”. While the headlines of Wen’s visit to Germany in particular were taken by the deal intended to grow two-way trade to $280 billion by 2015, it is the mostly overlooked agreements on growing investment, struck on the other two stops on his trip, Britain and Hungary, as well, that matter more to Beijing.

Access to natural resources is the driving force behind Chinese companies’ foreign direct investment (FDI) in developing economies, but in developed nations they are looking to buy commercial assets, particularly those that can provide value-added services, brands, management and technological expertise, raising local concerns about the influx and calls for more controls to regulate it. In the U.S. in particular, where protectionist sentiment is ever lurking in the legislature, there are competitiveness concerns about technology transfer, especially if it has military application, subsidies to state-owned banks, noncommercial motivations of state-owned companies, and the routing of Chinese FDI via third countries such as Hong Kong and tax havens to disguise its origin.

China’s outward FDI , at 1% of the world’s total, lags its share of global trade (8%), but its annual flows are growing rapidly. It hit $59 billion last year, up from an average of $3.8 billion in 1995-2005. Given the size of China’s foreign exchange reserves and the growth rates of its economy, $1 trillion of FDI could come out of China over the next 10 years. Hence the diplomatic push to forestall the erection of further barriers to Chinese trade and investment and to dismantle those that already exist. Some of this is done by signing bilateral trade and investment treaties like the ones struck on Wen’s visit, and some through multilateral organizations such as the G20. It seems inevitable that Wen’s successor will be doing a lot of globetrotting to pave the way for more Chinese investment in developed economies. There is going to be a lot of it.

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China-E.U. Trade Relations Turn Rocky

Two days after the E.U. said it was imposing its first countervailing anti-subsidy duties against China, on coated fine paper, the Ministry of Commerce says China will apply anti-subsidy duties in respect of E.U. subsidies given to potato starch products. Unlike many of the tit-for-tat trade retaliations between China and the U.S., both moves are commercially significant, and will exacerbate the political tension between the two.

China-E.U. trade has been growing rapidly, reaching $480 billion in 2010, but, as China’s exports start to move up the value-chain, under the E.U.’s newish hard-line trade commissioner, Karel de Gucht, Brussels is now focusing on what it perceives to be Chinese subsidies that result from a range of policies from direct state financial support to indirect assistance such as favorable borrowing terms and land grants. This could get very rocky.

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Agri-Colonialism In Africa

Chinese agribusinesses are a familiar sight across Africa, not always one welcomed by locals, but a new scheme in Zimbabwe is proving particularly controversial. Under the so-called twinning program, investors from Hubei would be paired with farmers in Mashonaland East, one of the most fertile regions of Zimbabwe. The farmers would provide land and labor, the investors capital and equipment; the crops grown would be shipped to China.

It is unclear who would own the land. Some reports suggest the Chinese investors would be given all or some of the land, others that they would just own the farm business they operate on it. The twining program is a provincial government-to-provincial government agreement and the details have been kept quiet.

Provincial officials from Hubei have recently returned from a visit to Mashonaland East. Much of the land in question was originally taken from white farmers in 2000 after independence and redistributed to friends of the regime regardless of whether they had any experience of agriculture. Since independence Zimbabwe’s once-prosperous farming based economy has collapsed, with the country facing food shortages. Hence the need to import expertise and finance to get fallow and failing farms back on their feet.

How much benefit this scheme would provide to local farmers or put food on local tables is questionable, given the crops will be exported to China. There is already a backlash against investors from China, South Korea and some of the Gulf states buying up farmland across Africa to produce cash crops for export at the expense of local subsistence farmers. Giving it away smacks of a bizarre reverse new colonialism.

Footnote: Chinese business have stepped into an economic void caused by U.S. and European sanctions imposed in 2002 against Zimbabwe’s human-rights record. Chinese-made goods are a common sight in local stores. Trade between the two countries totaled $560 million dollars last year, with three-fifths of that accounted for by Zimbabwean imports of Chinese products, particular mobile communications hardware.

Zimbabwe’s leading export to China is apparently tobacco, a surprise for such a minerals-rich country, though that may change with the easing of international restrictions on sales of Zimbabwe’s diamonds. Two of the five companies with diamond-mining licenses are Chinese. However, we note in passing trouble at one of them, Sino-Zimbabwe, state-owned cement maker China Building and Material Co.’s joint venture with Zimbabwe’s state-owned Industrial Development Corp., which reportedly fired local workers at its diamond mining operation earlier this month (via Bloomberg).

Political relations between Beijing and Harare are warm. In February, Foreign Minister Yang Jiechi called for the lifting of sanctions against the country. The following month, China provided Zimbabwe with a $700 million loan, to be used primarily to develop farming. Meanwhile, Chinese-owned businesses have been exempted from a recent law requiring Zimbabwean businesses to be 51% indigenously owned.

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Turning The Other Cheek

If jaw-jaw is preferable to war-war, and it usually is, especially in trade and economic conflicts, the latest round of the China-U.S. talks under the aegis of the Strategic and Economic Dialogue just concluded in Washington can be deemed a success. The low pre-meeting expectations that nothing very much would be achieved were readily met, but the main point of the discussions is to get everyone around a table and the contentious issues on it. Taking them off is low on the agenda, if expressions of intent to do so is not.

That was the case with what is being touted as the main achievements of this round, improved market access for both sides. Beijing said it would disentangle policies designed to encourage domestic innovation from government procurement, a promise it has made before, and rewrite its procurement rules to be less discriminatory towards domestic firms. It also promised to look into making its occasional crackdowns on intellectual-property theft more permanent, and check officials weren’t using pirated software. As ever, proof of the pudding will be in the implementation.

In return, Beijing asked for more access to the American market for its companies, and particularly to relax Washington’s high-tech export controls, whose security reviews repeatedly snag proposed Chinese acquisitions in the U.S. It wants Washington to be more transparent about its whole process. Commerce secretary Chen Deming rather mischievously said “In this area, I regard the United States as my teacher and since my teacher is asking me to be open and transparent and fair, I certainly would also ask my teacher to do the same to me.”

Not so much jaw-jaw as cheek-cheek.

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April’s Trade Surplus Surge Is Ill-Timed

Bad timing. China’s trade surplus for April came in at a larger than expected $11.4 billion as exports surged and imports were lower than expected. Exports grew 29.9% year-on-year to $155.7 billion while imports rose 21.8% to $144.26 billion. The numbers were announced between days one and two of the latest round of the China-U.S. Strategic and Economic Dialogue being held in Washington. They will provide fresh ammunition for U.S. critics of China’s tight management of its currency and increase the pressure on Beijing to allow faster appreciation of the yuan. China’s defense, that it recorded its first quarterly deficit in seven years in the first three months of this year, will be overwhelmed, though the central bank has been allowing the yuan to rise as part of its own anti-inflation fight. What is complicating that for it is the fact that while the yuan has gained more than 2% agains the dollar in the past six months, it has lost ground against other leading currencies as the dollar has weakened.

Footnote: Note for the watch-list: does April’s weak imports number reflect a slowdown in the economy or a running down of inventories, particularly of price-spiked commodities?


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BRICSHouse Five

The BRICS summit being held in Sanya on Hainan Island on Thursday will probably be presented as a united front of the leading emerging economies. The clarion call will be for strengthened cooperation and coordination between the quintet (South Africa makes five) over global issues such as trade, financial regulation and microeconomic policy, and the environment and climate change.

Yet there are plenty of underlying tensions between the members. China’s relations with Brazil are a case in point. Brazil’s new president, Dilma Rousseff, is making a concomitant state visit. Behind the headline trade deals (China is Brazil’s leading trade partner, with a small surplus in Brazil’s favor), she will be expressing concerns heard increasingly at home that Chinese manufacturing exports to Brazil are de-industrializing the Brazilian economy, while Brazilian exports to China are over concentrated in commodities. (State media are making a big counterpoint of the fact that China is buying Brazilian aircraft as part of the trade deals.)

Certainly the strength of the real, exacerbated by Brazil’s commodity exports to China, makes Chinese exports even cheaper in competition with domestic products. Rousseff will have been pressing Beijing to press ahead more vigorously with letting the yuan appreciate. People who live in bricshouses can still throw stones.

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