Trading Blows. Not Technology.

Related entries: Economy, General, News, Risk & Law, Trading

“China” and “trade” make for good headlines, and plenty of column inches, every time new figures are published. The latest set of reports (from a variety of sources noted below) include:

    • Exports from China: Up 27 percent in 2006, to US$969 billion (making China the number 3 manufacturing exporter after Germany and the US – China is expected to overtake the US in 2007 and Germany in 2008)

    • Imports to China: Up 20 percent in 2006 to $792 billion

    • China’s trade surplus: Up to US$46.4 billion in the first quarter, up from US$23.3 billion in the same period of 2006 (with significant gains seemingly down to exporters trying to take advantage of export tax rebates before they disappear). The surplus for the year was US$177.5 billion

    • The U.S. trade deficit with China: Hit a new record of US$232.5 billion in 2006 (out of a total US deficit of US$765.3 billion)

    • China’s foreign currency reserves: Up to US$1.2 trillion (up 37.4 percent year-on -year)

    • The RMB: The Chinese currency has risen by 7.1 percent against the dollar since the initial revaluation in July 2005. Continued, controlled rises are anticipated, but not at the pace demanded by the US

All this growth continues to cause consternation elsewhere, and especially in the highly politicized environment of the US – where two new complaints (relating to copyright abuses and restrictions on sales of US movies, music and books) have been filed at the WTO, adding to the recent move towards use of tariffs, and ongoing pressure to appreciate the RMB.

The Chinese reaction to the latest US WTO action has been to say “it would ‘seriously damage’ bilateral co-operation and harm business ties”. The FT reports:

    “Wang Xinpei, a commerce ministry spokesman, said the WTO action was “against the consensus reached between the two countries’ leaders on developing bilateral trade relations and properly handling trade problems”. He added: “China expresses great regret and strong dissatisfaction at the decision of the United States to file WTO cases against China over intellectual property rights and access to the Chinese publication market.””

As previously noted, the Chinese Ministry of Commerce is taking action to try and reduce the trade deficit, but they also continually make the point that the surplus with the US would be reduced if the US would allow more high-technology sales to China. An article in the Washington Times (by William R. Hawkins, senior fellow for national security studies at the U.S. Business and Industry Council Educational Foundation) comments on this issue from a (very defensive) US perspective:

    “Xinhua news service quoted China’s vice commerce minister Wei Jianguo as saying increasing imports of advanced technology is one way to ease China’s trade surplus. This is a longstanding ploy by Beijing to use the trade imbalance as leverage to remove security restrictions on the transfer of technology with military applications. Li Ruogu, deputy governor of the People’s Bank of China, has argued the United States “should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this.” This issue has been raised at every U.S.-China summit meeting…

    …integrated circuit manufacturing equipment, high-quality chemical fiber equipment and digitally controlled machines are also wanted. These would boost the competitiveness as well as the capacity of the defense industrial base, leading availability to [Beijing] of greater economic wealth and power. It is not in the long-run U.S. security or economic interests to see this happen.

    The first concern of U.S. trade policy must be continued American industrial pre-eminence, especially against geopolitical rivals.”

Some in the US seem to think they can have their cake and eat it too. With entrenched attitudes such as these, it is easy to see why there are problems. And hard to see how they will be resolved. However, it may be that harsh words help prepare for serious negotiations, and it will be interesting to see how planned US-China trade talks work out in May.

See news sources:

    China’s foreign reserves balloon
    BBC News – UK
    China’s foreign reserves, already the largest in the world, surged to $1.2 trillion (£607.4bn) in the first three months of 2007, a state agency said. …

    China passes US as No. 2 exporter
    Toronto Star – Toronto,Ontario,Canada
    GENEVA (AP) – China surpassed the United States as the world’s second-largest exporter in the middle of last year, according to figures released Thursday by …

    China’s Trade Surplus Nearly Doubles, Adding Friction With US
    Bloomberg – USA
    April 10 (Bloomberg) — China’s trade surplus nearly doubled in the first quarter from a year earlier, adding to friction as the US takes complaints against …

    China’s Trade Surplus Down, But Up
    Asia Corporate News Network (press release) – Sydney,NSW,Australia
    Sydney, Apr 11, 2007 (ACN Newswire) – Funny how China’s trade surplus in March plunged to ‘only’ $US 6.87 billion from the second highest figure on record …

    US sizes up WTO clash with China
    Finance24 – Cape Town,South Africa
    In parallel, according to administration sources, the government was to file action at the World Trade Organisation accusing China of restricting the …

    China trade action overdue
    Washington Times – Washington,DC,USA
    This is meant to head off increasing action in Washington to counteract unfair trade practices that have generated a 5-1 imbalance between China’s exports …

    China hits out as US launches trade cases – Poland / Financial Times
    The statement from China’s commerce ministry followed the announcement by the US that it was lodging two cases with the WTO – on intellectual property …

3 Responses to “Trading Blows. Not Technology.”

  1. john richardson Says:

    China has to keep on growing exports because its domestic industry is in chronic oversupply. Ninety per cent of manufacturing industry suffers from overcapacity on cheap capita and frequent abuse of intellectual copyright.
    Therefore, the only way to make money is in export markets.
    A continued collision with the west seems inevitable, unless the Chinese government can succeed in reining back local investment (difficult when the banking system is awash with liquidity) and raising local consumption to absorb all the surpluses. See my blog –

  2. Jeremy Gordon Says:

    It is certainly a challenge for China to balance domestic growth and foreign trade, but they are making progress on this front. In many industries there has been a history of overcapacity (much of it substandard) but the competitive environment, together with tighter credit, should help ensure that this sort of problem reduces over time. And, as in the past, new demand will help soak much of it up over time.

  3. Archive » A Silver (Trade) Lining on the (Economic) Cloud| China Business Blog Says:

    […] Perhaps a new deal on dual use technology will help the US further. It has certainly been a long time coming! […]

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