China trade surplus shadows Obama visit
By Olivia Chung
HONG KONG - China's surging trade surplus, with the increase last month almost
double the September figure, makes it impossible that trade issues will not be
a key topic when United States President Barack Obama makes his first visit to
Beijing this Sunday.
The surplus was US$24 billion in October, compared with $13 billion in
September, bringing the total for the year so far to $159.23 billion.
Trade tension between the two countries was already rising before the latest
data were released on Wednesday, with the US imposing a series of anti-dumping
sanctions on Chinese imports
and Beijing investigating the possibility of action against imports from the
US.
This week, before leaving on his nine-day trip to Asia, Obama warned that the
economic relationship between the countries had become deeply imbalanced in
recent decades, with a trade gap between the countries and huge Chinese
holdings of US government debt.
The US and China had to work together on the big issues facing the world, and
any competition between them had to be fair and friendly, Obama said in a White
House interview with Reuters.
He said he would be raising with Chinese leaders the sensitive issue of their
currency, the yuan, which is seen by some in US industry as significantly
undervalued and as an important contributor to the imbalances.
The financial crisis over the past year has played havoc with international
trade, not least between China and the rest of the world. Bilateral trade with
the US, China's second-biggest trading partner in the period, is down 14.8% in
the first 10 months this year, to $239.36 billion. Two-way trade with close
neighbor Japan, China's third-largest trading partner, has crashed 19.3% in the
period, to $182.34 billion. Business with the European Union, China's biggest
trading partner, has suffered almost as badly, declining 18.7% in value to
$292.42 billion.
"As we emerge from an emergency situation, a crisis situation, I believe China
will be increasingly interested in finding a model that is sustainable over the
long term," Obama said. "They have a huge amount of US dollars that they are
holding, so our success is important to them ... The flip side of that is that
if we don't solve some of these problems, then I think both economically and
politically it will put enormous strains on the relationship."
China holds about $2.27 trillion in foreign reserves, about two-thirds of it in
US dollars, as of the end of September, up 19% from a year earlier. The country
held Treasury bills worth about $797.1 billion in August, making China the
world's largest holder of US Treasuries outside the United States, according to
the US Treasury Department.
While China's purchases of Treasuries helps the US government finance its
spending, Beijing is under pressure to boost the value of the yuan, which some
economists argue would help ease the trade imbalance. After a 21% one-off
appreciation of the yuan in 2005 and slight subsequent strengthening, the
Chinese currency has been flat against the United States dollar, at about 6.83,
since the middle of last year. With the global economy showing increasing signs
of recovery, expectations are growing that the yuan will be allowed once more
to appreciate.
Qin Gang, spokesman of the Foreign Ministry, on Tuesday called on the US to
properly handle bilateral trade problems, saying the nations should negotiate
on an equal basis and oppose trade and investment protectionism in any form.
"Compared to the huge common interests and benefits brought about by bilateral
trade, the problems in trade relations are secondary," said Qin.
The US decision this month to impose tariffs of as much as 99% on Chinese steel
pipes after American producers complained they were being dumped at
below-market prices, and the earlier imposition of stiff duties on tires and
other products reflect the growing tension in Sino-US trade relations. In the
first nine months of this year, the US started 14 investigations into Chinese
exports with a total value of $5.84 billion. While the number of probes is down
6% from a year earlier, the value has soared by 639% in the period, according
to China's Ministry of Commerce.
The ministry said the imposition of duties on steel pipes was the biggest US
trade action against China to date, topping the US administration's move to put
a 35% tariff on $1.85 billion worth of Chinese-made tires late in September.
Last year, Chinese steel pipe exports to the US were worth $3.2 billion. A
Commerce Ministry spokesman, Yao Jian, said the steel pipe anti-dumping case
would affect more than 90 steel plants, including state-owned Baosteel Group,
Hunan Valin Steel and Tianjin Pipe (Group) Corp.
Yao urged the US to follow pledges made recently at the 20th China-US Joint
Commission on Commerce and Trade talks in Hangzhou, capital of east China's
Zhejiang province. US Secretary of Commerce Gary Locke said in Hangzhou that
the US would review granting China market economy status, which would ease
controls on US exports to China
"We continue to discuss what it will take for China to be declared a market
economy," he was quoted as saying by the China Daily.
China wants the US to speed up recognition of China as a market economy, ahead
of the 2016 deadline agreed on when Beijing negotiated entry into the World
Trade Organization. China hopes market-economy status will give the country
more leverage in trade disputes.
"By not recognizing China as a market economy, the US is acting in a
discriminatory manner," Yao said.
In a move seen as retaliation against US tariffs, the Commerce Ministry last
Thursday said it had expanded its investigation into imports of US chickens and
chicken products, accusing Washington of providing producers with unfair
incentives, such as low-priced chicken feed. The investigations were extended
to alleged subsidies by local governments in Arkansas and Texas to chicken
farmers.
The ministry said on its website last Friday that it had also launched an
investigation into alleged dumping and unfair subsidies for cars and off-road
vehicles with an engine size of two liters or above exported to China from the
US. The ministry said the probe, which could lead to additional duties on
vehicles made by General Motors, Ford and Chrysler, was made in response to
complaints from domestic carmakers.
"This is a gesture to show the US that China is taking a hard stance in dealing
with American protectionist measures," said Tang Sai-kit, a Hong Kong-based
commentator on the automotive industry. Even so, "as imported vehicles from the
United States are not substantial, [any measures] would not have a big impact
on the US auto industry."
US models accounted for about 14% of the 145,000 cars China imported in the
first half of this year, according to the China Chamber of Commerce for Import
and Export of Machinery and Electronic Products.
The latest Chinese action comes after it earlier responded to the US imposition
in September to tariffs on automobile and light-truck tires by filing a
complaint to the World Trade Organization and initiating the now broadened
anti-dumping investigations into imports of US auto parts and chicken products.
"The US anti-dumping ruling is unfair to Chinese producers who sold pipes in
the US at a 20% premium to our domestic prices," said Li Liancang, an export
manager at the state-owned Tianjin Pipe Group, in an interview with Bloomberg.
"Chinese exports to the US have almost stopped since the preliminary ruling in
September."
The tariffs were imposed even after China's steel exports to the US, hit by the
economic downturn, plunged by 73% in the year through August compared with the
year-earlier period, the China Iron and Steel Association said last month.
The White House is under increasing domestic pressure to be seen as protecting
US workers, with the US unemployment rate jumping to 10.2% in October from 9.8%
in September, hitting its highest level in more than 26 years. It is also
battling to ensure support for initiatives such as the Obama healthcare
reforms.
"Trade protectionism is particularly serious amid the global economic crisis as
some countries are trying to protect their industries and retain jobs," Zhou
Shijian, a senior analyst at the Sino-US Relations Research Center of Tsinghua
University, said. "The United Steelworkers Union, which lobbied in both the
steel pipe and the earlier tire cases, was a major supporter of President Obama
during last year's presidential campaign, so the union is an important ally in
his fight for his healthcare reform plan."
The trend towards increasing tariffs was likely to continue, Zhou said. "Given
that the global economy has not fully recovered from the recession, leading to
more political and economic issues, the US is likely to target more China-made
products and, even worse, other countries will follow suit."
Jing Ulrich, managing director and chairman of China Equities and Commodities
at JP Morgan, said Obama's visit to China was likely to heighten focus on a
number of recent trade disputes between the countries, but these affected only
a small part of their business relationships.
"In spite of recent trade tensions, the disputed products represent a
relatively small volume of bilateral trade, and relations between the United
States and China have remained fairly constructive, in light of concerns at the
onset of the global financial crisis that protectionism could spiral out of
control,” Ulrich said.
The issue of the yuan's valuation was also expected to feature prominently in
discussions, she said. "Chinese policymakers have pledged to maintain a stable
exchange rate to allow domestic manufacturers and exports to adjust to market
conditions." The global economic downturn means that Chinese exporters are
struggling, despite the impression of strength given by the trade surplus.
Exports in the January to October period were down 20.5% from a year earlier.
The widening trade spat between the countries also indicated the ambiguous
nature of US policy towards China, which Obama's visit was unlikely to end,
according to Zhou Xizeng, a Beijing-based analyst with CITIC Securities Co.
Prior to the Hangzhou talks, Secretary of State Hillary Clinton asserted that
the two countries were in the same boat in these troubled times, while Obama
has said that Sino-US ties are the "most important bilateral relations in
world".
But due to domestic challenges, such as rising unemployment and general public
discontent over the financial sector, the US administration is trying to win
domestic support "by every means possible, including vague policies towards
China. As the problems will not go away soon, such policies will continue,"
Zhou said.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please
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