Tag Archives: U.S

China’s Soybean Importers Threaten More Defaults

CHINA’S SOYBEAN IMPORTERS are hardening their line on defaulting on contracted shipments in an attempt to force down prices in face of burgeoning stockpiles and slowing demand. China is the world’s biggest buyer of soybeans, accounting for three-ffiths of global imports. The main use for the beans is to be crushed into meal to make poultry feed. Demand for feed has fallen by an estimated 15% following last year’s outbreaks of bird ‘flu.

Since late February Chinese importers have cancelled 1 million metric tons of orders from the U.S. and South America, particularly from Brazil, though to put that in context, China imports 70 million metric tons a year. In the Chicago commodities futures markets, soybean prices have risen by more than 14% this year.

Trading firms mostly clustered in Shandong province have refused to make payments for about 20 shipments, Shao Guorui, general manager of Shandong Sunrise Group, reportedly says. Chinese buyers face losses of as much as $7 million dollars on each shipment, he adds. The crushing companies they sell onto are suffering, too, with around half the industry’s capacity idle because of over-expansion. 

Sunrise accounts for one-eighth of China’s soybean imports. It is part of Shandong Chenxi Group Co., run by Shao’s multi-millionaire brother Zhongyi.

The issue could flare up into a trade dispute with Japan.  Shandong buyers have 80 to 100 cargoes booked for delivery from the Japanese trading giant, Marubeni, through July. Marubeni accounts for a quarter of China’s soybean imports. “Marubeni is deluded in thinking that payments will come once the cargoes have sailed,” an unidentified industry executive based in Shandong was quoted as saying.

 

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The Chen Case: A Inconvenient Test Of China-U.S. Relations

The flight of Chen Guangcheng from house arrest in Shandong to the refuge of the American embassy in Beijing comes at a highly inconvenient time for Sino-U.S. relations. U.S. Secretary of State, Hilary Clinton, and her counterpart at the U.S. Treasury, Timothy Geithner, are due in Beijing this week for what were routine bilateral talks. These will now be overshadowed by what is an embarrassment to Chinese authorities and a problem U.S. diplomats could do with out given all the other glowing embers of contention between the two countries. Clinton has advanced the dispatch of some of her sherpas in an effort to defuse the situation before she arrives. Her assistant secretary of state, Kurt Campbell, is already in Beijing, several days ahead of his planned arrival.

Both governments are staying mum on Chen’s case. The Americans haven’t officially acknowledged Chen is sheltering in their embassy. China’s foreign ministry spokesman says they have no information about Chen’s whereabouts. Whatever. With China’s leadership mired in the Bo Xilai affair and Amerca’s in a presidential election, both governments will want a quiet solution, but are unlikely to get it because of the domestic political pressures.

The Obama administration was criticized domestically for not granting Wang Lijun, Bo’s police chief in Chongqing, asylum when he went to the U.S. consulate in Chengdu to reveal that Bo’s wife Gu Kailai was implicated in the murder of British businessman Neil Heywood. To deny asylum to Chen, if he asks for it, a person whose case the Americans have repeatedly raised on human rights grounds, would open the Obama administration to charges by his Republican opponents of again being “soft on China”, just as they accuse him of being over trade, currency and other economic issues. The administration, which doesn’t have the luxury of being able to criticize from the campaign trail without having to deal with the fallout from “interfering in China’s domestic affairs”, has been trying to walk a tightrope between promoting human rights without that a getting in the way of working with Beijing on global and regional issues that affect U.S. national interests.

With China’s rise as a regional and economic power, the two countries’ national interests intersect ever more frequently–Syria, Iran, North Korea, South China Sea, Taiwan–to list some current points of tension. All are ones where nationalist voices can be raised strongly at any time, and amplified by domestic politics. Within China, it doesn’t take much for the conservatives in Beijing to resurrect the specter that Washington is exploiting Chinese domestic events to weaken or encircle the country. One reason that the diplomats on both sides want a quiet, face-saving resolution to the Chen affair is that both sets know they have bigger issues to fight over.

Older readers may remember the case of Fang Lizhi, who sheltered in the U.S. embassy in Beijing for more a year in the wake of Tiananmen in 1989. It was caustic to China-U.S. relations.  The relationship has matured but also become more complex since. Yet a diplomatic sweeping under the carpet of an inconvenient affair is not what the diplomats are likely to get.  Chen is going to be a stern test of the bigger relationship.

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Trade For Two, And Two For Trade

The South Korea-U.S. free trade agreement comes into force today–as this Bystander feels sure you have noted in your diaries. It is tangental to our brief but worth noting in passing for several reasons. Beijing, Seoul and Tokyo hope to start the sharp end of talks on their own free trade agreement later this year. China is both being dragged and dragging its trade partners before the World Trade Organisation with some regularity. And while the next round of the WTO’s global free trade talks, the Doha round, is proceeding even more glacially than reform in China, free trade agreements are popping up everywhere.

Nearly three score have come into force since January 2008. The total in effect is fast approaching 300 and many more are being talked about. (Trade trivia question: now Mongolia has struck a free trade agreement with Japan, which is the one WTO member left that is not party to any free trade agreement?)

The days when free trade agreements were seen as undermining the multilateral global trading system seem distant memory. Bi- or limited plurilateral regional free trade agreements will shape trade policies for the foreseeable future. They are also more suitable for developing existing cross-border trade flows being created by the needs of global logistics chains. Whether they undermine the big benefit  of multilateral agreements, that they increase trade overall by lowering restrictions across the board, is moot. But then the Doha round isn’t doing anything to boost trade overall for as long as it remains stalled.

The most significant of the free trade agreements under discussion for  the Asia-Pacific region is the Trans-Pacific Partnership (TTP) that the U.S. is taking over. China is on the outside of that at this point. Japan is the swing state. If it joins the TTP, China’s exclusion will be of more consequence than if it does not. Another free trade agreement in the pipeline that has implications for China is one between the EU and India. Meanwhile, Washington and Seoul are putting in place another piece of the new world trade order.

Footnote: The answer is Mauritania.

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Rare Earths Pas De Deux

The joint complaint the U.S., EU and Japan are bringing to the WTO against China over rare earths has been a case in waiting ever since the U.S. and the EU won over other Chinese industrial raw material export restrictions in January. Those set a precedent for the successful argument that export restrictions by commodity producers glut domestic markets and thus let raw materials to be bought cheaply to domestic manufacturers in a way that can be considered trade distorting.

In the case of rare earths, the group of minerals used by high-tech, military and green technology manufacturers of which China produces 90% of the world’s supply, Beijing says it is prudently managing a scarce resource plagued by illegal mining–though rare earths would be less of a scare resource if more mines in the U.S., Australia and South Africa driven out of production by an earlier glutting of international markets were to reopen. The Catch-22 is the more mines that reopen, the more international prices are pushed down making reopening of more uneconomic, and leaving Chinese producers with great sway over international supplies.

This is a delicate dance for both sides, and one with political sub-themes, too, with there being leadership elections in Beijing and Washington. The two sides have 60 days to work out a deal before the complainants can ask the WTO to rule, which is what this Bystander expects to happen. However, we still hold to our view that, recent precedent not withstanding, this is far from an open and shut case. Beijing’s tough enforcement of its environmental protections of rare earths makes the case that they are a mere pretext for protectionism more difficult to sustain  than was the case with the export restrictions on coke, zinc, bauxite and the six other raw materials that the WTO ruled in January did break world trade rules.

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Beijing’s Common Cause With Washington In Myanmar

Myanmar stands as a good example of the cooperation and competition that characterizes the relationship between Beijing and Washington. Much of the commentary on Hillary Clinton’s visit to Myanmar, the first by a U.S. Secretary of State in half a century, has concentrated on how Washington wants to detach Beijing’s hold on Naypyidaw. This is seen as part of a grander plan on the part of the Obama administration to counter China’s growing influence in the region. Yet, to this Bystander, it seems that not only can the U.S. do no more than loosen Beijing’s grip, from tight to firm, but also that is now, on balance, in Beijing’s interest that Myanmar emerges from its international isolation.

That isolation has left China as Myanmar’s largest trade and investment partner. Construction of the Myitsone dam may have been suspended but work on six other Chinese-built dams continues. The road, rail and energy pipeline connections across between Yunnan province and Myanmar’s Bay of Bengal coast are being developed by the day. Chinese companies have a first mover advantage that could be readily exploited if international sanctions on Myanmar are lifted and its population of 60 million is provided with an opportunity to catch up with the economic progress of the rest of Southeast Asia.

Neither U.S. nor Indian firms are in any position to leapfrog Chinese ones in Myanmar, any more than Washington or New Delhi will leap ahead of Beijing politically. The security risk to China’s southwestern reaches is marginal compared to the potential economic and political gains.

Beijing certainly does not want a full-fledged democracy that is in Washington’s pocket on its doorstep. Yet it would not be adverse to a more broad-based government in Naypyidaw that could bring to an end Myanmar’s minority ethnic conflicts. These insurgencies are primarily being fought along the length of the border with Yunnan. China’s commercial interests in extracting Myanmar’s natural resources and sending cheap manufactures in the opposite direction are far better served by peace than strife. As we have noted before, Beijing does not want another flood of refugees from the fighting.

Nor would China be too sorry to see North Korea lose a fast friend and export trans-shipment point in Burma. That would only make Pyongyang more reliant on Beijing, and reduce by one the potential ranks of nuclear armed neighbors.  Meanwhile, Beijing and Naypyidaw are strengthening their military ties. Min Aung Hlaing, the new commander of Myanmar’s armed forces, may have pointedly made his first foreign visit to Vietnam, but he was in Beijing earlier this week to sign a memorandum of understanding with Chen Bingde, his PLA counterpart, to deepen military cooperation. He also met President-Assumptive Xi Jinping. Closer military ties will help China’s naval reach into the strategically important waters of the Indian Ocean.

State media has stuck an uncommonly neutral tone in its coverage of Clinton’s visit to Myanmar, highlighting her promotion of economic reforms and the need for ethnic conflicts to be resolved. Beijing has more common cause with Washington on both those fronts than those looking for a grander geopolitical game imagine.

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U.S. Forces To Australia And Beijing’s Response

This Bystander is shocked, shocked to find that geo-politics is going on in the region!

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