Andrew Batson, “China’s Export Focus Breeds Backlash”

BEIJING—China’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 strategy—including a cheap currency, regulated interest rates and low energy prices—are 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.

Gu Wu, who runs a company exporting radio-controlled toy cars from Shenzhen, says export orders have started to pick up since September. During the depths of the downturn, he asked his U.S. salespeople to fan out and find new clients, and is now reaping some of the benefits. “Many of them have come back with big orders, although cheaper goods are still the most wanted,” Mr. Gu said.

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 yuan—its value against the currencies of all trading partners—is 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.

—Ellen Zhu and J.R. Wu contributed to this article.

Write to Andrew Batson at andrew.batson@wsj.com

http://online.wsj.com/article/SB10001424052748703837004575012960493292150.html

Mure Dickie, “Too early to call a true rebalancing in Japan”

Too early to call a true rebalancing in Japan, Financial Times

By Mure Dickie

Published: November 17 2009 02:00 | Last updated: November 17 2009 02:00

Andrew Edgecliffe-Johnson, “Manufacturers feel ‘hardship’ of China currency”

Manufacturers feel ‘hardship’ of China currency, Financial Times

By Andrew Edgecliffe-Johnson in New York

Published: August 14 2009 21:52 | Last updated: August 14 2009 21:52

China is becoming a less attractive place for manufacturers, who are feeling the “hardship” of the country’s undervalued currency, according to the head of Samsung’s digital camera division.

Samsung Digital Imaging, which manufactures in China, had not enjoyed the benefits of Korea’s competitive currency, said Park Sang-Jin, its chief executive.

“The yuan is greatly devalued [so] we had a hardship from the currency,” he told the Financial Times in an interview in New York.

“China still makes sense, but any manufacturers who are keeping manufacturing facilities in China start pointing out the changes in Chinese government policy and the currency devaluation.”

Mr Park’s comments come amid an intense debate on the impact of China’s currency policies, a rising outsourcing trend and intensifying competition between low-cost manufacturing hubs.

AlixPartners, a consultancy, said in May that in the previous six months there had been “significant change” in China’s position in the low-cost country rankings, with Mexico now surpassing it for certain components and China’s “total, fully landed costs” just 6 per cent lower than the cost of manufacturing the same parts inside the US.

“The conditions are getting worse for maintaining our manufacturing facilities” in China, Mr Park said, noting that some Japanese manufacturers were now looking at Vietnam as an alternative location.

“As a global player, we always review our options. We will keep our competitiveness under whatever circumstances,” he said, noting that Samsung had already moved mobile phone production to Vietnam, where it has long produced televisions.

The digital imaging business had held no such talks with Vietnam, a Samsung spokesman said.

Mr Park’s comments came as he unveiled a new range of products that reflect the extent to which the growth of social networking sites is changing the camera business.

One, the TL225, features a second LCD display on the front of the camera, to meet what Mr Park called the “unmet need” of teenagers wanting to take pictures of themselves for their Facebook or MySpace pages.

“They take a lot of self-portraits shots, but they’re not so sure they’re in the frame and well-focused,” he said.

“Lifestyles are changing very quickly,” Mr Park said, highlighting the falling numbers of people who print out their photographs.

Mr Park predicted a “quick recovery” to 2008 revenue levels for the industry next year as consumers resumed travel plans put on hold by the economic slump.

Samsung would increase its global market share in digital imaging from GfK’s current estimate of 11.3 per cent, partly thanks to its largest marketing campaign yet, aimed at building up its brand in the camera business to the same level of recognition it enjoys in flat screen televisions and mobile phones.

“Exchange rates threaten Asian exporters,” Financial Times

“Exchange rates threaten Asian exporters,” Financial Times

By FT reporters

Published: August 10 2009 17:37 | Last updated: August 10 2009 17:37

Unexpectedly upbeat economic data in recent weeks have boosted Asia-Pacific currencies against the dollar, causing governments to worry that rising exchange rates may hurt exporters.

Surging investment in stock markets in South Korea, Taiwan and Thailand has also strengthened currencies.

Anxieties are particularly high as the renminbi, which does not trade freely, has remained stable against the dollar, giving Chinese exporters an advantage over Asian rivals.

The won this month hit its strongest level since October, recovering to Won1,216, supported by statistics suggesting the South Korean economy was regaining its footing.

In March, the South Korean won hit an 11-year low of 1,574 to the dollar, capping months of decline even as Seoul put billions of dollars into the won’s defence, with foreign reserves dropping $27.4bn or 11 per cent in October.

However, much of this recovery in Asia’s fourth biggest economy is founded on large conglomerates and government pump-priming. Smaller enterprises, which account for 90 per cent of jobs, are still vulnerable to the won’s strength.

Kwon Goo-hoon, economist at Goldman Sachs, said the central bank could intervene by rebuilding foreign reserves, which dropped 11 per cent last October, and loosening regulations on Korean Investment Corp, National Pension Service and others seeking to invest abroad.

Overseas money has poured into shares in Taiwan on hopes of better relations with China, putting upward pressure on the Taiwan dollar. “The fact that Taiwan’s foreign exchange reserves hit another record high in July suggests that the central bank has been intervening in the foreign exchange market quite aggressively,” said one economist.

The rise in the New Zealand currency is more worrying given the small nation derives close to a quarter of its gross domestic product from exports.

The competitiveness of New Zealand’s dairy, lamb and wool exports has been undermined by a 28 per cent rise in the Kiwi against the US dollar in the last six months.

The New Zealand Manufacturers’ and Exporters’ Association this month warned the strength of the currency would cost jobs and called on the central bank to lower rates further. The central bank governor said further rate cuts could be on the cards if the NZ dollar kept rising.

The Bank of Thailand responded to the baht’s rise by last week saying it would allow Thai corporations with assets of at least Bt5bn ($149m, €105m, £89m) to invest overseas to a limit of $50m (€35m, £30m) without approval, and more with specific clearance.

Commenting on the currency’s rise, Thanyalak Vacharachaisurapol of the Kasikorn Research Centre in Bangkok said: “It is a combination of fundamental factors, particularly the current account surplus, and the funds flow into the stock market as hot money that was pulled out of the stock market earlier in the year starts to flow back in.”

Reporting by Christian Oliver in Seoul, Peter Smith in Sydney, Robin Kwong in Taipei and Tim Johnston in Bangkok

Sarah O’Connor and Frances Williams, “Beijing can launch new stimulus, says IMF”

Beijing can launch new stimulus, says IMF

By Sarah O’Connor in Washington and Frances Williams in Geneva

Published: July 22 2009 18:04 | Last updated: July 23 2009 01:27

http://www.ft.com/cms/s/0/6072aede-76da-11de-b23c-00144feabdc0.html

China has room to launch another stimulus aimed at increasing domestic consumption and swinging the economy away from its dependence on exports, the International Monetary Fund said on Wednesday.

The report came even as the World Trade Organisation said China was set to overtake Germany as the largest goods exporter this year, underlining what many economists see as the need for China to export less and consume more.

In a long-delayed assessment of China’s economy, the IMF report praised the country’s efforts to stimulate its economy. But it added that, given the low level of public debt, it saw “further room for a targeted, additional stimulus aimed at increasing private consumption through near-term fiscal measures to raise household income”.

The IMF’s executive directors suggested reforms to healthcare, education and pension systems which would make people feel better about saving less and spending more.

It also said unemployment would probably rise as China tried to rebalance the economy and jobs were lost in export sectors. However “over a longer horizon, the employment gains from rebalancing towards domestic consumption and an increase in service sector employment should outweigh short-term losses”.

The economic assessment is meant to be issued annually but had been blocked by China until now over fears about how the IMF would label its currency, which some complain is kept unfairly low to make exports more competitive.

IMF directors were divided over that issue, according to the report. Some thought the renminbi remained “substantially undervalued” and should be strengthened as part of a “comprehensive strategy to rebalance the economy”. Others said it was difficult to make exchange rate assessments and the currency would only play a “supplementary role”.

The issue is a source of constant friction between the US and China, and is likely to be raised next week when top officials from the two countries meet in Washington for a “strategic and economic dialogue”. Some US lawmakers want to put sanctions on Chinese goods because of its currency policy, but the Obama administration has backed away from confrontation.

International financial institutions expect China to reap quicker trade benefits from a global upturn later this year that will be led by emerging economies.

“Our figures showed that Asian countries may be leading a recovery in global trade,” Pascal Lamy, WTO director-general, told reporters in Singapore at a meeting of trade ministers of the Asia-Pacific Economic Co-operation forum.

Last year, China’s merchandise exports of $1,428bn (€1,004bn, £869bn) were only slightly behind Germany’s $1,465bn, according to the WTO report.

Meanwhile, China, which notched up year-on-year growth of nearly 8 per cent in the second quarter, remains the top destination for future foreign direct investment (FDI), according to a survey by the United Nations Conference on Trade and Development released on Wednesday. The 240 multinationals that responded to the questionnaire put the US in second place, followed by India, Brazil and Russia.

Copyright The Financial Times Limited 2009

Also see:

IMF Executive Board Concludes 2009 Article IV Consultation with the People’s Republic of China July 22, 2009

Jeff Immelt, “Innovation can give America back its greatness”

Innovation can give America back its greatness, Financial Times

Jeff Immelt

Published: July 8 2009 18:31 | Last updated: July 8 2009 18:31