China Translated

Although China’s exports to the EU and US have held up pretty well this year, all things considered, it’s clear that the fiscal consolidation just getting underway in these two big markets will make things tough going forward. New avenues to pursue export growth will have to be found, and these are likely to come increasingly from the emerging world. You can already see evidence from the trade numbers that exporters are making headway in penetrating new markets - exports to Brazil were up by an eye-popping 98% year on year in the first five months of 2010, and those to ASEAN markets by 46%.

All of which helps to explain why emerging nations like Brazil and India are beginning to join the US and EU in the interminable finger-pointing over the renminbi. India has also begun to use anti-dumping measures against China on a regular basis across a number of sectors. Is this a sign that a new front in China’s trade wars is opening up? I doubt it. India, Brazil and a few others (Mexico and Turkey spring to mind) have the mass market and the strategic global clout to get in China’s face on trade, but any other emerging nations that try throwing their weight around in this way are likely to receive a bruising reminder of Chinese-style trade diplomacy.

Take Argentina, which earlier this year imposed restrictions on imports of Chinese-made shoes, pipes and other products. China was not happy, and responded with quality control measures on soy bean oil imports that hit Argentine exports. Five months on it’s pretty clear who’s winning this argument: according to the China customs administration Chinese exports to Argentina were up by 75% year on year in January-May, while its imports from the country were down 42%. Given that few emerging markets will be willing to risk losing out on the Chinese bonanza like this, I think most will remain wary of trying to curb the Chinese import surge.

Incidentally, given the clarity of the Chinese trade numbers (regarded as some of the stronger data in China’s somewhat rickety statistical base) it is funny to see Xinhua running with the Argentinian data. These portray a far more harmonious picture, with both China’s exports to Argentina and Argentinian exports to China rising, by 39% and 19% respectively. Trade flows are also much higher than shown by the Chinese side’s data. Sadly in this case, given the background of events on the ground and the poor reputation the Argentinian government has for statistical truth-telling, I’d put more faith in the Chinese numbers.

Duncan Innes-Ker is a senior economist with the Economist Intelligence Unit

China - Latin America relations, Guest contributor, International Relations, Statistics, Trade

Did anyone notice a new world order emerging at the recent meeting of business leaders in Davos?  Me neither.  But we must have been looking in the wrong place, because everyone’s favourite Communist Party magazine - Outlook Weekly - saw it quite clearly.

Here’s my translation of the main points of an article on Vice Premier Li Keqiang’s trip to Switzerland, from the latest edition:

‘The summit at Davos was happily timed to coincide with two ’saying goodbye to the old and welcoming the new’ moments.  The first was the end of the 00’s and the beginning of the 10’s.  The second was the waning of the old Western dominated world order, and the dawning of a new world order, where large emerging countries will have greater power and influence.

The world is becoming multi-polar, and this process is leading to rapid reform of global systems of governance.  International power and influence is shifting from the West to the East and from the North to the South.  Western countries are being compelled to share their influence with emerging countries in the East.

After the financial crisis, the centers of global influence are the US, EU, China, Russia, Japan, India, and Brazil.  ‘One super power many strong powers’ （一超多强）has become ‘One super power six strong powers’ （ 一超六强).  The US might still be the only super power, bu the six other powers now includes four developing countries.’

The article goes on to set out China’s ‘four principles’ for global economic governance, as set out by the Chinese representative at the G8 meeting in September 2009.  These are:

1. The objectives of governance: to push forward economic globalisation, with a focus on mutual benefit and win-win solutions

2. The subject of governance: all countries should participate on an equal basis in global governance

3. The process of governance: the process should be consultative, with the interests of all countries - especially developing countries - considered

4. The system of governance - at different levels and in different spheres, to increase the representative nature of global governance, a new framework for economic governance should be constructed

Finally, the article notes that at a briefing for Chinese media ahead of Vice Premier Li’s trip, a spokesman for the Foreign Ministry added his own three principles for reform, which can basically be boiled down to a greater role for developing countries in global governance, and respect for all countries’ right to determine their own development model.

The main points and general tone of the argument in this article certainly supports the idea that post-crisis China has growing confidence about its weight in world affairs.  The authors use of the term ‘one super power six strong powers’ is also interesting.  The term ‘one super power many strong powers’ has been in China’s international relations vocabulary since the end of the cold war, expressing the hope that multiple smaller powers would be able to check the influence of the US.  The transition from ‘many strong powers’ to ’six strong powers’ might be wishful thinking on the part of China, but also indicates some crystallisation of thought in Beijing as to who those ‘many strong powers’ might be.

China - Africa relations, China - Latin America relations, EU-China Relations, Financial Crisis, IFIs, International Relations, US-China Relations

Outlook Weekly is an official magazine with a focus on political, economic, and international relations issues.  Apparently it is widely read by government officials and party members.  To coincide with the Obama visit, the latest issue has a  lengthy piece explicating Hu Jintao’s 5-principles for the conduct of international relations. 

Here is my translation of the 5-principles:

1. The principle of deep change (深刻变革论) - today’s world is going through a process of unprecedented and historic changes, our world is everywhere a world of opportunities and challenges.

2. The harmonious world principle (和谐世界论) - the need for peace, the urge for development, the importance of cooperation - these are unalterable historical trends.  International society should work hard to construct lasting peace, shared prosperity; and a harmonious world.

3. The shared development principle (共同发展论) - the relationship between countries is one of collective interests, with joys and sorrows borne together.  We must work toward a way of thinking about our collective development that places greater emphasis on communication and cooperation, learning from each other, win-win solutions and shared development.

4. The principle of shared responsibilities (共担责任论) - international society has to establish the idea of shared responsibility.  Considering matters from all sides, we should join hands together to face shared challenges and threats.

5. The principle of active participation (积极参与论) - China’s fate is more and more interwoven with the fate of the world.  We must synthesis the objectives of retaining our independence and participating in the global economy, taking account of domestic and international interests as we play our part in the high task of promoting peace and development.

The other noteworthy point about the article is that there are lots of pictures of Hu in friendly mood with other world leaders, including former US President George W. Bush, the leaders of Brazil, India and Russia, and some African leaders.  But the following article on the meeting with Obama shows Hu looking decidedly less welcoming.

China - Africa relations, China - Latin America relations, EU-China Relations, International Relations, US-China Relations

In an article in the latest issue of Caijing, Yu Yongding, Head of the Chinese Academy of Social Science International Economics and Politics Research Center, sets out his views on the creation of a new international reserve currency, and on how China should deal with new flows into its reserves, and its stock of existing dollar debt.  Below is my rough translation of his main points.
Zhou Xiaochuan’s proposal for moving toward a super-national international reserve currency based on SDRs is similar to proposals from other international economists and, whilst it is a good idea, it is in all probability not something that we will see in our lifetime.  Yu draws an analogy with the euro – which had a fifty-year journey from initial suggestion to appearance as a real currency.
He notes that China does not and should not wait for the appearance os a new international reserve currency to solve its problems.  Faced with the very real possibility of a depreciation in the value of China’s holdings of dollar denominated debt, he has some practical suggestions of what to do.
First, China should shift decisively toward domestic demand as a drive of growth.  Less dependence on exports would mean a smaller trade surplus (and less need to manage the exchange rate) and therefore less opportunity (and reason) to buy dollar denominated debt.
Second, if domestic consumption and investment cannot soak up all of China’s spare cash and it absolutely has to be invested overseas, Yu suggests diversifying away from US$ denominated debt.  Specifically he suggests money from the future trade surplus that cannot be invested or spent at home should be invested directly in Asia, Latin America and Africa, and help Chinese firms take advantage of opportunities for overseas acquisitions.
Third, for dealing with existing reserves, without reducing its holdings of US$ denominated debt, China can make some sensible changes in the structure of that debt, for example moving from long to short-term debt (to guard against the predicted long-term decline in the value of the dollar) and toward inflation indexed debt (to guard against the predicted increase in inflation eroding the value of the debt).
Yu also believes that China’s reserve holdings are in excess of its needs and are excessively concentrated in US$ debt.  He suggests selling some of the existing reserves and using the proceeds to diversify into other currencies.  Another portion of the existing reserves should be sold and the proceeds used to fund FDI and financial investments.  Yu notes that the biggest objection to this idea is that if China sells its holdings of US$ debt it will take a loss (both on the sale and on the value of remaining US$ assets).  Yu notes that this is not, of course, a perfect solution.  But diversification is a basic principle of investment, and by taking the loss now, China will guard against a larger loss if the US$ should depreciate suddenly in the future.

China - Africa relations, China - Latin America relations, Financial Crisis, IFIs, Trade, US-China Relations

February witnessed a Southern Hemisphere charm offensive from China.  Hu Jintao paid a trip to Saudi Arabia, Mali, Senegal, Tanzania, and Mauritius, saying in one address that ‘every time I come to Africa I feel like I am coming home’.  Xi Jinping visited Mexico, Jamaica, Columbia, Brazil and Venezuela。  Hui Liangyu meanwhile visited Ecuador, Barbados and the Bahamas.  For those unfamiliar with Hui Liangyu you can see a picture of him here.

Africa is an important source for China’s raw materials and Beijing has had some success at doing deals with ruling elites - generally involving some form of infrastructure for minerals swap.  It is also hoped that Africa’s middle income countries, like South Africa, will increasingly be a market for China’s middle technology products.

Between 2006 and 2008 the Chinese government invested $400m in Africa, catalysing investment of $2bn from Chinese companies.  On trade, total trade of $10bn in 2000 has risen to $106.8bn in 2008 (though there are concerns that China’s competitiveness is wiping out Africa’s nascent manufacturing industry).

Latin America is also an important source for China’s raw materials - oil from Venezuela and Ecuador and soy beans and iron ore from Brazil.  It is also already an important market for China’s goods, and joint ventures in Mexico and elsewhere have allowed Chinese firms to sell into the US market through NAFTA.

There was an attempt to set out an overarching strategy for engagement with the region in a paper published by the Chinese government in late 2008 which you can read in Chinese here.

What to make of this latest series of visits?  A review of articles in Caijing and Southern Weekend sheds a little light on the situation.

On Africa, Caijing notes that Hu Jintao has been to Africa six times as President.  Many have accused China of being interested only in Africa’s mineral wealth.  On this trip, however, Hu did not visit any resource rich countries.  What is more, China is only the third largest market for Africa’s oil exports, accounting for 12.5%, behind the US (31.8%) and EU (31.5%).

Instead, an expert from the Chinese Academy of Social Sciences argues, Hu’s trip was carefully designed to indicate the China has a holistic interest in Africa.  The trip included an island, an inland country, a country China had only just established relations with, and a country with whom they had enjoyed good relations for many years.

With debt forgiveness and infrastructure investment an important part of China’s relations with Africa, the Hu Jintao trip, coming at a time when Western countries might be backing away from their development work, is also intended to indicate that China is a reliable development partner. Apparently Hu used the visit to assure African countries that China would, on their behalf, urge developed countries not to forget their obligations.

The Southern Weekend article notes that Chinese leaders are also aiming to expand investment and market opportunities for Chinese firms - lining up behind the ‘defend eight’ policy (defend 8% GDP growth).

Demand from the US and the EU has already shrunk, the author notes, but the fear is that governments in the Washington and across Europe will be unable to withstand protectionist pressures.  China needs to build consensus for free trade, and keep national markets open, to ensure demand for its products and keep its export engine ticking over.

You can see the Southern Weekend article here.  The Caijing article has mysteriously disappeared from their website.

China - Africa relations, China - Latin America relations, Energy, Infrastructure