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China's Export Focus Breeds Backlash
Developing Nations Join West in Criticism of Beijing's Policies to Support Its Factories Despite Fears of Global Imbalance
By ANDREW BATSON, Reuters
BEIJINGChina's efforts to extend its dominance as the world's top exporter are facing stiff challenges, as the policies it has used to support exports bring new economic problems and escalate tensions with a growing list of trade partners.
Key elements of the strategyincluding a cheap currency, regulated interest rates and low energy pricesare stoking discontent in fellow developing countries, not just Western capitals. That could crimp its drive to seek gains from emerging markets as growth in the rich world falters. At the same time, many economists argue, China's export-friendly policies are fueling inflationary pressures at home, placing a burden on the rest of the economy.
Beijing is increasingly pushing back against what it calls unfair protectionism. Chinese authorities Friday set duties on some U.S. chicken products to counter alleged dumping. And on Thursday, Beijing filed a complaint to the World Trade Organization against European Union tariffs on imports of Chinese shoes.
China's current-account surplus narrowed sharply in 2009, the government said Friday, a reflection of the impact of the global financial crisis on the nation's trade balance.
But that may have just increased the pressure on Beijing to support its exporters.
China now accounts for more than 9% of global exports, a share that, after stagnating for most of 2007 and 2008, has been rising since the outbreak of the financial crisis and the ensuing collapse in global trade.
China has surpassed the U.S. as the world's largest car market and is close to passing Japan as the world's second-largest national economy after the U.S.milestones that create a sense of its dominance at a time when other nations continue to struggle with the aftermath of the crisis.
"China and some of the other emerging economies are emerging intact out of this recession, and probably even stronger than before," said Maarten Kelder, Asia president of consultants Monitor Group. "They have been able to adjust their cost structures and that has made them more competitive."
That may not be enough to keep China's exports growing at the 20%-plus rates of recent years, even when the world economy recovers.
While China has long faced pressure on trade from the U.S. and the EU, officials from developing countries such as Indonesia, Brazil, Thailand and Russia have also expressed concern in recent months.
India filed more trade complaints against China than any other nation last year, according to figures from China's commerce ministry. "A balance of exports and imports is important," Indian Trade Minister Anand Sharma said in January in Beijing. China's trade surplus with India grew 46% last year to $16 billion, probably aggravated by the weakening of the yuan against the Indian rupee.
"The dollar peg of the [yuan] has put additional strain on lower-end Asian exporters. This has led to charges of unfair trade from across Asia," said Jamie Metzl, executive vice president of the Asia Society.
Even nations in Africa and the Middle East that have benefited from China's oil demand and foreign aid are now voicing discomfort with its economic rise. "When we look at the reality on the ground we find that there is something akin to a Chinese invasion of the African continent," Libyan Foreign Minister Musa Kusa said in November.
China's government says it isn't banking on an export-driven future and has tried, though so far without much success, to shift the emphasis of the economy to domestic consumption and services.
The collapse in world trade that began in late 2008 was far from painless for China: It put millions of people out of work and closed thousands of factories. Chinese exporters responded to the downturn by redesigning products and looking for new markets. They also benefited as the recession encouraged consumers to switch to the kind of lower-price products China provides. Shipments of traditional products such as toys and clothing held up far better than its other exports last year.
China's government worked to reinforce exporters' efforts. After allowing the yuan to rise for much of 2007 and 2008, authorities repegged it to the dollar in mid-2008. Exports got a further boost once the dollar started to fall in March. The effective exchange rate of the yuanits value against the currencies of all trading partnersis down by 9% to 10% since then, according to the Bank for International Settlements.
The result: China accounted for 19% of U.S. imports in the first half of 2009, up from 16% in 2008, according to U.S. Census Bureau figures.
China's global market-share gains enabled it to do less badly than other trading powers in the downturn. It exported $1.202 trillion of goods in 2009, 16% less than in 2008 but still more than any other nation. Export growth is expected to resume this year.
The export resurgence has reached into new markets: A majority of China's exports now go to other developing countries, with exports to India, Brazil, Indonesia and Mexico growing by 30% to 50% in recent months, according to China International Capital Corp.
"There's a potential spoiler for China in relations with the developing world. They've only been exporting and not importing," said Ben Simpfendorfer, an economist for Royal Bank of Scotland. "It's one thing to produce job losses in the U.S., but it's another to produce job losses in Pakistan," with which China has close military ties, he said.
If China is able to overcome the obstacles, it could continue to expand its share of global exports for several more years. According to International Monetary Fund projections, if current trends continue, China's share of world exports could reach 12% by 2014, a higher portion than Japan managed at the peak of its dominance in the 1980s.
But some researchers at the IMF say current trends aren't likely to continue. A paper by IMF researchers published last year suggests that for China to continue the rapid export gains of recent years, it would need to boost its share of world exports to about 20% in coming decades, an unprecedented level. The fund's researchers said China is unlikely to be able to do that without using even more government subsidies, which would further aggravate trade tensions and cause domestic economic problems.
China's Export Focus Breeds Backlash - WSJ.com
Developing Nations Join West in Criticism of Beijing's Policies to Support Its Factories Despite Fears of Global Imbalance
By ANDREW BATSON, Reuters
BEIJINGChina's efforts to extend its dominance as the world's top exporter are facing stiff challenges, as the policies it has used to support exports bring new economic problems and escalate tensions with a growing list of trade partners.
Key elements of the strategyincluding a cheap currency, regulated interest rates and low energy pricesare stoking discontent in fellow developing countries, not just Western capitals. That could crimp its drive to seek gains from emerging markets as growth in the rich world falters. At the same time, many economists argue, China's export-friendly policies are fueling inflationary pressures at home, placing a burden on the rest of the economy.
Beijing is increasingly pushing back against what it calls unfair protectionism. Chinese authorities Friday set duties on some U.S. chicken products to counter alleged dumping. And on Thursday, Beijing filed a complaint to the World Trade Organization against European Union tariffs on imports of Chinese shoes.
China's current-account surplus narrowed sharply in 2009, the government said Friday, a reflection of the impact of the global financial crisis on the nation's trade balance.
But that may have just increased the pressure on Beijing to support its exporters.
China now accounts for more than 9% of global exports, a share that, after stagnating for most of 2007 and 2008, has been rising since the outbreak of the financial crisis and the ensuing collapse in global trade.
China has surpassed the U.S. as the world's largest car market and is close to passing Japan as the world's second-largest national economy after the U.S.milestones that create a sense of its dominance at a time when other nations continue to struggle with the aftermath of the crisis.
"China and some of the other emerging economies are emerging intact out of this recession, and probably even stronger than before," said Maarten Kelder, Asia president of consultants Monitor Group. "They have been able to adjust their cost structures and that has made them more competitive."
That may not be enough to keep China's exports growing at the 20%-plus rates of recent years, even when the world economy recovers.
While China has long faced pressure on trade from the U.S. and the EU, officials from developing countries such as Indonesia, Brazil, Thailand and Russia have also expressed concern in recent months.
India filed more trade complaints against China than any other nation last year, according to figures from China's commerce ministry. "A balance of exports and imports is important," Indian Trade Minister Anand Sharma said in January in Beijing. China's trade surplus with India grew 46% last year to $16 billion, probably aggravated by the weakening of the yuan against the Indian rupee.
"The dollar peg of the [yuan] has put additional strain on lower-end Asian exporters. This has led to charges of unfair trade from across Asia," said Jamie Metzl, executive vice president of the Asia Society.
Even nations in Africa and the Middle East that have benefited from China's oil demand and foreign aid are now voicing discomfort with its economic rise. "When we look at the reality on the ground we find that there is something akin to a Chinese invasion of the African continent," Libyan Foreign Minister Musa Kusa said in November.
China's government says it isn't banking on an export-driven future and has tried, though so far without much success, to shift the emphasis of the economy to domestic consumption and services.
The collapse in world trade that began in late 2008 was far from painless for China: It put millions of people out of work and closed thousands of factories. Chinese exporters responded to the downturn by redesigning products and looking for new markets. They also benefited as the recession encouraged consumers to switch to the kind of lower-price products China provides. Shipments of traditional products such as toys and clothing held up far better than its other exports last year.
China's government worked to reinforce exporters' efforts. After allowing the yuan to rise for much of 2007 and 2008, authorities repegged it to the dollar in mid-2008. Exports got a further boost once the dollar started to fall in March. The effective exchange rate of the yuanits value against the currencies of all trading partnersis down by 9% to 10% since then, according to the Bank for International Settlements.
The result: China accounted for 19% of U.S. imports in the first half of 2009, up from 16% in 2008, according to U.S. Census Bureau figures.
China's global market-share gains enabled it to do less badly than other trading powers in the downturn. It exported $1.202 trillion of goods in 2009, 16% less than in 2008 but still more than any other nation. Export growth is expected to resume this year.
The export resurgence has reached into new markets: A majority of China's exports now go to other developing countries, with exports to India, Brazil, Indonesia and Mexico growing by 30% to 50% in recent months, according to China International Capital Corp.
"There's a potential spoiler for China in relations with the developing world. They've only been exporting and not importing," said Ben Simpfendorfer, an economist for Royal Bank of Scotland. "It's one thing to produce job losses in the U.S., but it's another to produce job losses in Pakistan," with which China has close military ties, he said.
If China is able to overcome the obstacles, it could continue to expand its share of global exports for several more years. According to International Monetary Fund projections, if current trends continue, China's share of world exports could reach 12% by 2014, a higher portion than Japan managed at the peak of its dominance in the 1980s.
But some researchers at the IMF say current trends aren't likely to continue. A paper by IMF researchers published last year suggests that for China to continue the rapid export gains of recent years, it would need to boost its share of world exports to about 20% in coming decades, an unprecedented level. The fund's researchers said China is unlikely to be able to do that without using even more government subsidies, which would further aggravate trade tensions and cause domestic economic problems.
China's Export Focus Breeds Backlash - WSJ.com
