Peter Mandelson "Protectionist of the Month" August 2005

Peter Mandelson went to Brussels riding a wave of goodwill for a new liberalising agenda, promising an era of "free and fair" trade
as EU trade commissioner. Less than a year later he has managed to land
Europe in a protectionist mess. A continent of 450 million people is
permitted to import only 105 million pairs of trousers from China.
As one wit put it, "a shortage of trousers and a surplus of wine is a great strategy for a party, but a crazy way to run Europe’s economy".
Mandelson’s plan for clothes rationing means that domestic producers,
who had 10 years to prepare for the opening of the textiles trade to
international competition, will be able to continue to charge Europe’s
consumers high prices for products.

The fact that western businesses and bureaucrats had a decade to prepare for the end of the quota regime is a point that’s worth making. Many businesses did prepare, mostly by moving their production and sourcing operations to China, and the quotas are now punishing them for it while rewarding those who lacked long-term strategic planning skills.

On which, Sun Bin has excellent observations on how the EU still has no long-term, or even immediate-term, vision:

The problem EU encountered today is a direct result of lacking
a clear and longer term rule. How can you impose quota all at a sudden,
leaving no time for merchants to plan? They need to at least waive
quota for all those who have already signed the contract prior the
quota implementation. I thought this is common sense for any
policy setter, apparently not for the EU bureaucrats. Prior this year
exporters need to "buy" quota before they could ship out the
merchandise, and the buyers are clearly aware of and prepared for that.
Now all of a sudden the quota is set at the EU border and no one knows
when it is filled. Importers just continue with their orders. Perhaps
the Chinese negotiators already saw through this a couple months ago
but they just kept quiet.

In spite of strict capital controls, or more properly because of them, China has a problem with money laundering.

We’ve heard many stories, told second and third hand, usually over a
cocktail or two (or three), of outrageous sums of Chinese cash,
laundered transationally. The "invoice trick,"
a common and ancient method, involves a domestic company purchasing
overpriced product sold by an overseas "seller." The outflow of cash
over and above the instrinsic value of the product, being, of course,
the laundered sum. Taiwanese authorities in the 1980s became rather
expert at spotting these value discrepancies.
Of greater concern are the major cases — and in China there have
been an extraordinary number. Take the train shipments case as an
example. Originating at the Luo Wu station in Shenzhen, cardboard boxes
filled with RMB 8 Million (US$ 1 million) were transported daily to a
Hong Kong bank for nearly a year. A cool million a day for a year. One
can hear the clinking of the glasses and shouts of "A toast to China Rail!"

Via CDT, Robert Shiller looks at whether the Chinese economy is overheating and gives high praise to regulators.:

… maybe the word “overheated” is misleading. It might be more accurate
to say that public attention is over-focused on some recent price
changes, or over-accepting of some high market values. Whatever one
calls it, it is a problem.
Fortunately, people also tend to
trust their national leaders. For this reason, it is all the more
important that the leaders not remain silent when a climate of
speculation develops. Silence can be presumed to be tacit acceptance
that rapid increases in long-term asset price are warranted. National
leaders must speak out, and they must match their words with concrete
actions, to help signal to the public that the speculative bubble
cannot be expected to continue.
That is what the Chinese
government has begun to do. The real-estate boom appears to be cooling.
If the government continues to pursue this policy, the salutary effects
in terms of public trust in the country’s businesses and institutions
will help ensure stable, sustainable economic growth for years to come.

I’m not as convinced and think the slowing property market may be arriving after the damage is done. I lean toward the Andy Xie point of view that the cooling property market, and over investment and overcapacities in materials production, will help tip the country into a corrective slowdown .

Further on property, the Big Picture picks up on yesterday’s top item, Asian buying into the US property bubble, and notes:

Front page story in yesterday’s WSJ, titled "
Housing-Bubble Talk Doesn’t Scare Off Foreigners."
Funny thing is, foreigners are notorious for their bad timing in buying both equities and real estate in the U.S.
Examples:  Rockefeller Center purchased by the Japanese at
the top of the 1980s Real Estate run; Foreigners dumped U.S. equities
in the summer of 2002, after piling into them in 1999.

An interesting post at the Oil Drum argues that China has bought into the peak oil theory, or at least has decided that oil isn’t fungible.:

At that point China may well get what it needs, only if it has the
rights to the oil through the companies that it controls.  And that may
become an issue.  Countries such as Indonesia are already having
problems because "their" oil is leaving, and they can’t afford to buy
it back.   This may lead to different national policies.  After all, in
the past, a number of countries took over the oil from foreign
operators, and there is nothing to say that existing arrangements
cannot be changed, by state fiat in many cases.

AsiaPundit doesn’t buy the peak oil theory, or at least not yet. I had the pleasure of living in Kuwait when prices crashed in the late 1990s and I see conditions for another crash around the corner. For the second time in a post, I’m in agreement with Andy Xie.:

China’s total oil imports eased 1.2 percent in the first five
months of 2005, Xie said, and they could fall further next year as new
power plants help prevent the electricity outages that inflated demand
for diesel and fuel oil in 2004.
Last year’s fall in the U.S.
dollar was often cited as a factor behind higher oil prices, since it
makes fuel less expensive in non-dollar economies and as it wooed
investment from speculative hedge funds. But with the greenback near an
eight-month high versus the euro, that too has faded.
As all
these factors gather pace, the market may ultimately be doomed to crash
by the growing dependence of financial institutions on oil trading
profits, Xie writes.
"As oil has worked for so long, the
financial community is hanging on to this position," he says.
Speculative funds have been increasingly active in commodity markets
over the past two years and are often blamed by OPEC for keeping prices
high.
"They will likely keep prices up until an oil market
collapse. That day is not too far away, I believe… What is occurring
now is probably the final frenzy, in my view.