11 June, 2005

china’s trade surplus

Macroblog has a look at the latest trade data from China.

Fons notes that China and the EU have reached an agreement on textiles that should help reduce tensions.:

SHANGHAI (Reuters) - China agreed to limit the growth in its exports of 10 textile and clothing products to the European Union to between eight and 12.5 percent a year, an EU diplomat close to the negotiations said on Friday.

China Digital Times has more.

I was at the talks or, more accurately, I was in the hotel lobby where the talks were taking place. The talks started at 14:14 and the deal was announced close to midnight. That’s around 12 hours in a hotel without wi-fi.

Some personal impressions below the fold…

As is usual at media events here, I was questioned by a state-news
agency reporter on what my opinions were. She didn’t have a camera, so
I obliged. It was unfortunate, I said, that there even had to be talks.
Europe and the US have had a decade to prepare for the end of quotas
and they didn’t.

A deal with Europe is better than a ‘trade war,’ but it would have been preferred if no such talks were needed.

And a deal with the European side is easier than getting one with the
US. The US-China trade relationship is still more important to the globe and pressures are still building. The textile industry is important to the cotton-producing US
South - and I expect that pressure from the industry is pushing the
Republicans, in particular, towards protectionism. This will still be
a problem, no matter what happens with Europe.

However, I suspect that part of the massive
first-quarter jump in China’s textile imports was based on heavy
inventory building ahead of the end of quotas. That could mean the
large jump in exports would be a one-time event caused by the draining
of a excess stock. Should I be correct, subsequent increases will be
smaller - which could reduce trade pressure and frictions without a
need to resort to further ’safeguards.’

That said, there will still be problems. China, and foreign companies
in China, had probably overbuilt capacity ahead of the end of the quota
regime. With this, competition in the domestic market will likely be
just as vicious as competition overseas. While China-based producers
may be able to beat Western-based ones on prices, there will likely be
a steady erosion in margins domestically. That could also lead to actual dumping
(selling abroad below production costs) and even greater tensions.

So, a deal that will limit Chinese export growth to Europe for three years is welcome as a band-aid measure - but I don’t think it really solves much.

by @ 6:33 pm. Filed under China, Money, Economy, Northeast Asia

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