Today come two views on China’s trade surplus, and the US deficit, that are worth paying attention to. One arguing that there may be a serious problem with China’s statistics (surprise) and the other suggesting that China’s surplus is a positive thing for America.
Standard Chartered economist Steven Green, one of the best China hands at any investment bank, offers a rather frightening essay in Businessweek suggesting that the majority of China’s 2005 trade surplus was, essentially, hot money.:
The export of fake goods out of China is commonplace whether you are talking about designer bags, blockbuster movie DVDs, or “Mont Blanc” pens. Many European and U.S. holidaymakers take these knock-offs home with them — some of them knowing they’re counterfeit; others are unaware. Underground Chinese firms spirit such goods out of the mainland on a much larger scale.
Now we may we have identified another fake: the supposedly gargantuan global trade surplus China enjoys with the rest of the world. Much of China’s trade surplus in 2005 was not trade at all, we think, but rather capital inflows (perhaps as much as $67 billion) disguised as trade. If so, this has major implications for China’s trade policies, the yuan, and the way the U.S. deals with China.
Also worthwhile is P.J. O’Rourke’s latest offering, in which he provides his typically acerbic musing on the surplus and other aspects of his recent three-week visit to China.:
There is no such thing as a trade deficit. It doesn’t matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods. It’s not like the Opium Wars when the British forced the Chinese to accept shipments of, shall we say, pharmaceutical imports. Maybe the Chinese will fight a war with America–the Consumer Electronics War of 2007, with Chinese gunboats cruising the fountains in America’s malls. But it hasn’t happened yet.
I look around my house, and everything except the kids and dogs was made in China. And I’m not sure about the kids. They have brown eyes and small noses. All the Chinese got in return were those pieces of paper and an occasional 747 and some Microsoft software. Even if the software is illegally copied 1.3 billion times–and it was, I saw it on sale–China is getting the short end of the stick. This is another economic principle that America’s policymakers can’t get through their lumpy, bruised skulls. Imports are good. Exports are bad. Imports are Christmas morning. Exports are January’s Visa Card bill.
AP very briefly met O’Rourke on his trip and he did offer an improved view of Shanghai — which he described in his 1989 text ‘Eat the Rich‘ as the “worst of both worlds.”
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Mao: The Unknown Story - by Jung Chang and Jon Halliday:
A controversial and damning biography of the Helmsman.
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May 24th, 2006 at 11:54 pm
there is more. remember the VAT rebate for export? i.e. the factory receives rebate of the 17% VAT is the goods is exported,
but not so if sold domestically.
the factory owners would then ‘export’ the goods and smuggle them back for domestic consumption.
e.g., a facoty needs a container of copper wire. it purchase from a domestic factory.
but the two factories make an arrangement that the copper is destinated for HK.
it got the export certificate. the supplier gets the rebate, and rebate the discount to the buyer.
case 1: the container never leaves the port, instead, it was send directly to the buyer. customer officers bribed.
case 2: the ship make a detour back to the port, the 20 ton container was filled to 30 tons (30 full tons in the export certificate for rebate),
but the custom officer only record 10 ton whne it is imported. saving in tax? 17%-(1/3)ximport tariff, which is often less than 10% for these goods.
May 25th, 2006 at 4:57 pm
Does it matter whether the surplus is on the trade (current) or the capital account? Whichever it is the market is still sending signals that it thinks the currency should appreciate.
Having said that, Mr Green’s right that the government should be cautious as the speculative fund flow may swing rapidly. And of course there’s a whole bunch of implications for trade relations if the surplus is smaller than they say. Would that we were able to see this more transparently - bring on the day of liberalised capital account flows…
May 25th, 2006 at 6:39 pm
Trading with the enemy…
Via Asiapundit, the very funny PJ O’Rourke on America’s trade problems with China:The problem with America’s……