The appeals panel of the World Trade Organization ruled on Monday that China must dismantle its system of export taxes and quotas for nine widely used industrial materials, reports the NYT. The legal setback for Beijing could set a precedent for the West to challenge China’s export restrictions on other natural resources, including rare earth metals that are crucial to many modern technologies, trade experts said. The WTO’s Appellate Body, its highest tribunal, ruled that China distorted international trade through dozens of export policies it maintains for bauxite, zinc, yellow phosphorus and six other industrial minerals. The case was filed in 2009 against China by the US, the European Union and Mexico. The FT says the WTO case has acquired even greater importance amid Beijing’s moves to impose similar restrictions on the export of a rare earths, a category of 17 elements that are found in an array of high-tech products, including solar panels, wind turbines and mobile phones.
China’s overall trade surplus last year fell to $155bn, its lowest level since 2005, underscoring how slowing global growth and rising Chinese demand are reshaping the country’s economy, the FT reports. The falling trade surplus could ease pressure on China to accelerate the appreciation of the renminbi, in a year when US election politics have turned up the rhetoric over Chinese trade policies. US Treasury secretary Tim Geithner arrives in Beijing on Tuesday for a two-day visit to discuss trade and economic issues, and he is also expected to press for Chinese co-operation on recent US sanctions on Iranian oil transactions. China’s trade surplus shrank last year as imports grew faster than exports, partly due to Beijing’s growing purchases of commodities such as iron ore and crude oil.
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday. China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America. In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres.
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.
Just in case anyone was thinking of dusting off the idea that China might bailout Europe, here’s a repeat of its demands: conferral of “market economy” status (for WTO purposes) and an “ironclad” guarantee that they’ll be paid back. This is Yao Yang, director of the China Center for Economic Research at Peking University, who we can assume is toeing the party line when writing first at Project Syndicate and then, on Tuesday, for China Daily.
Chinese export and import growth both decelerated in November, signalling a broad slowdown in the global economy and putting pressure on China to do more to stimulate growth, reports the FT. The deepening woes for Chinese exporters will also fuel expectations that Beijing could soon halt appreciation of the renminbi, which has already slowed to a crawl against the dollar over the past three months. Exports were up 13.8 per cent in November from a year earlier, down from a 15.9 per cent pace in October. Imports rose 22.1 per cent, down from 28.7 per cent. That left China with a $14.5bn surplus on the month, largely in line with market forecasts. Chinese exports to Europe slowed most sharply, rising just 5 per cent and weighed down by the financial turmoil in eurozone countries. Exports to the US remained relatively buoyant, but shipments to Japan slowed. Some economists believe the slowing trade growth will trigger another cut to the reserve ratio requirement for Chinese banks, says Bloomberg.
China has for the first time revealed the estimated size of its copper inventories, implying the country’s consumption may have been lower than thought, the FT says. Chinese copper inventories stood at 1.9m tonnes at the end of 2010, more than the US consumes in a year, according to estimates by the state-backed China Non-Ferrous Metals Industry Association. The estimate is significantly higher than the 1.0m-1.5m tonnes range that foreign executives have assumed in the past. The numbers were not made public, but were announced at a meeting of the International Copper Study Group last month in Lisbon, according to several people who attended. Meanwhile, the latest trade data shows that while imports of all major commodities by China was holding up, 2011 has not been a strong year overall with growth in crude oil imports sharply down, the WSJ reports.
China has warned that the US could plunge the global economy into a 1930s-like depression if it passes a bill that aims to punish Beijing for holding down the value of its currency, reports the FT. With the Senate set to vote on Tuesday on legislation that would impose tariffs on imports from countries that manipulate their exchange rates, China has said that the consequences of such a move could be dire, leading to a trade war. In a commentary just hours ahead of the vote, the official Xinhua news agency took the warnings a step further, saying the proposed legislation in the US was reminiscent of the Smoot-Hawley tariffs in 1930 that worsened the Great Depression.
The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi, the FT reports. Speaking just hours after the Chinese government sharply criticised a US congressional bill that would punish Beijing for alleged currency manipulation, Ben Bernanke told a congressional committee that an undervalued renminbi was preventing the rebalancing of global demand towards emerging market economies. The US Senate voted overwhelmingly on Monday to open debate on a bill, clearly aimed at China, that would impose tariffs on imports from countries with undervalued currencies. However on Tuesday, John Boehner, Republican Speaker of the House of Representatives, counselled caution over the bill, saying it went beyond the remit of Congress.
The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi, reports the FT. Speaking just hours after the Chinese government sharply criticised a US congressional bill that would punish Beijing for alleged currency manipulation, Ben Bernanke told a congressional committee that an undervalued renminbi was preventing the rebalancing of global demand towards emerging market economies. “Right now, our concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy,” he said. “It is to some extent hurting the recovery”. The US Senate voted overwhelmingly on Monday to open debate on a bill, clearly aimed at China, that would impose tariffs on imports from countries with undervalued currencies. On Tuesday, the Chinese government blasted the bill in three statements released simultaneously by the foreign ministry, the central bank and the ministry of commerce, saying the legislation could spark a “trade war”.
The US Congress is renewing a push to penalise China over its currency, the FT says, potentially forcing the White House to choose between angering its Democratic base and upsetting its delicately balanced relations with Beijing. The Senate is expected to vote on anti-China trade legislation on Monday, with the bill likely to pass with overwhelming bipartisan support, before being sent to the House of Representatives. The White House has given mixed signals on the subject. The bill would require the commerce department to use estimates of currency undervaluation when calculating so-called countervailing duties, imposed against imports deemed to be state-subsidised. Although the legislation has been drawn more tightly than previous such bills, which simply proposed levying an across-the-board tariff on Chinese imports, many trade lawyers think it would still be vulnerable to legal challenge at the World Trade Organisation.
The US Senate is set to vote next week on legislation to punish China for manipulating its currency, as the renewed threat of global recession raises tension over exchange rates, reports the FT. Harry Reid, Democratic leader of the Senate, said this week he would invoke “cloture” – a procedure to prevent delay – for senators to vote on a bill that would require the US to use estimates of currency undervaluation when calculating anti-subsidy import tariffs. The bill is subject to amendment, meaning that it could end up with so many additions it becomes in effect impossible to move forward, but experts in trade policy said it had a good chance of passing.
Chinese premier Wen Jaibao threw some shade on the eurozone on Wednesday, and the US too — insisting they get their own fiscal and monetary houses in order and recognise China as a market economy if they really want to see some investment. His own house didn’t look so great, either, when the Asian Development Bank challenged the likelihood of a much hoped-for Chinese soft landing with its updated outlook. It raised the inflation forecast for China, while cutting growth forecasts (hmm… stagflation, anyone?).
An exasperated Michael Pettis always makes for an enlightening Michael Pettis column. This time he trains his eye on the possible implications of the recent announcements by China that this time it means what it says about diversifying its reserve holdings out of USD assets. Sure.
Earlier on Monday we looked at China’s pork-led inflation and declining imports, only the latest data that would seem to reinforce increasing concern among market observers about the potential impact of a Chinese slowdown on global growth. The US economy has hit a proverbial “soft patch” of uncertain transitoriness (TM), Europe remains mired in sovereign debt problems, Japan is still recovering from its earthquake, and the next commodities price shock always seems just round the bend. So, to be understated about it, now would be a bad time for China to grind to a halt.
The World Trade Organisation on Tuesday ruled against China’s practice of limiting its exports of raw materials, handing a victory to the US and the European Union in a closely watched trade dispute, the FT writes. The edict from a WTO judicial panel, responding to a complaint from the EU, US and Mexico, said China’s imposition of export duties and quotas on a variety of metal ores and other materials were illegal under WTO rules. By setting a precedent, the decision also strengthens the hand of the EU and US in their related campaign to prevent Beijing restricting the exports of rare earth materials, which are vital components in a number of high-tech products and are produced almost exclusively in China. Karel de Gucht, Europe’s trade commissioner, said the verdict would help to create a more level playing field for raw materials. “I expect that China will now bring its export regime in line with international rules. Furthermore, in the light of this result China should ensure free and fair access to rare earth supplies,” Mr De Gucht said.
The World Trade Organisation will on Tuesday condemn China for limiting its exports of major raw materials, the WSJ reports. The WTO decision, arising from a case filed by the US, EU and Mexico in 2009, rejects China’s arguments that the restrictions are needed for environmental reasons. It is also viewed as setting a precedent for the US and the EU to file another complaint against China over its controversial quotas on the export of rare-earth materials. China can appeal the decision on raw materials under WTO law.
Prices of some rare earth metals have doubled in just three weeks to mid-June amid heavy stockpiling by China that has raised fears over global supplies, reports the FT. China produces more than 90% of the world’s rare earths, 17 elements used in hybrid cars and many high-tech applications. A recent crackdown by Beijing on rare earth mines and restrictions on exports have rattled markets, prompting Japan and the US, the biggest importers of rare earths, to voice concerns to Beijing amid complaints from industrial users. Last year, China cut its exports by 40% and temporarily banned exports to Japan during a political dispute. Rare earth prices have already been rising sharply this year, but the recent sharp price increase has puzzled Chinese analysts, who blamed it largely on hoarding by companies who expect prices to rise further. Bloomberg reports that Goldman Sachs recently said Beijing may further reduce export quotas, pushing prices higher.
FT Alphaville has already alluded to the fact that it isn’t just copper that has been subject to Chinese inventory financing shenanigans. Other commodities, especially base metals, are supposedly also being used for such purposes.
Sean Corrigan, chief investment strategist at Diapason Commodities, was the first to detect a correlation between China’s loose monetary policies and copper prices. His basic finding; the greater the amount of loans extended in China, the more copper imports into China. Although that was in January 2010.
For those wondering about the wider implications of Japan’s earthquake crisis, don’t go too far. Consider how it will impact China — the country’s top trading partner. BNP Paribas took a closer look at the effects of ruptured trade flows between the two countries on Monday. Their findings suggest that this — if anything — could be the Achilles heel in the recovery that everyone is looking for, since — as we all know — the world economy is so dependent on Chinese growth for staving off recession.
Figures this week showed surging foreign direct investment in China — up 23.4 per cent to $10bn in January from a year earlier. But they hide a number of key trends — including a steady shift in the direction of Japanese and Korean FDI, away from China to other emerging economies of the region. Macquarie Securities picks up on this in a research note suggesting that China’s reduced tax incentives and higher labour costs have been driving the shift in Japanese and Korean intra-regional investment flows over the last couple of years.
China is officially the world’s second largest economy, pushing Japan into third place, reports the WSJ. Data released on Monday confirmed that Japanese GDP totalled $5.47 trillion – versus $5.88 trillion reported by China in January. US 2010 GDP stood at $14.66 trillon. Also on Monday, data showed that China’s trade surplus fell in January because of soaring import demand, a reduction that eases pressure on Beijing ahead of the G20 summit in Paris later this week, the FT reports. The trade surplus fell from $13.1bn in December to $6.5bn last month, the lowest surplus in nine months, as a result of stronger-than-expected imports.
The Obama administration should revive discussions with China over a bilateral investment treaty, a senior Republican in the House of Representatives said as he pressed the White House to adopt a more aggressive trade policy, reports the FT. Dave Camp, chairman of the House Ways and Means Committee, accused the administration of a “lack of action” on the China investment treaty, saying it was “as confusing as it is damaging to the interests of US businesses and their workers”
We promised some comment on the silver backwardation story we did earlier, and now we have some. The story continues with Friday’s LBMA silver forward rates (SIFO) settling in at negative as far out as 12 months for the second day in a row. So far, everyone in the market we’ve spoken to agrees this is all unprecedented.
Beyond the spotlight glaring on China’s leader Hu Jintao as he kicks off his US visit are some intriguing movements in Beijing’s foreign reserves management. First, we had China’s pledge to buy eurozone bonds amid its recent charm offensive in Europe.
China took a further step towards increasing its currency’s global role, allowing domestic companies to move renminbi offshore for investment purposes, the FT reports. The shift came as the People’s Bank of China allowed the currency’s daily trading reference point to strengthen through the Rmb6.6 per dollar level for the first time on Thursday, a day after Tim Geithner, US Treasury secretary, reiterated concerns about China’s currency policy. The renminbi, which many of China’s trading partners believe is undervalued, will feature in discussions next week between Hu Jintao, Chinese president, and Barack Obama, his US counterpart, in Washington. Companies have been allowed to use the renminbi to settle international trade transactions since July 2009, under an initiative to reduce Beijing’s reliance on the US dollar. According to the PBoC, mainland companies can now use the renminbi to launch businesses overseas and fund acquisitions.
China recorded its smallest trade surplus in nine months in December as export growth slowed and imports to feed the booming domestic economy surged ahead, reports the FT. The country’s trade surplus in December was $13.1bn, well below economists’ predictions and November’s $22.9bn surplus, according to Chinese customs data. The shrinking surplus is partly explained by higher prices of the commodities and raw materials China imports to power its growth.