Sunday, 21 February 2010

China fights back

Five years after losing the so-called Sino-US ‘bra wars’, China is standing firm as the Pacific rivals square up to a fresh spate of trade cleavages.

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Guanyu 道 said...

China fights back

By Grace Ng, China Correspondent
20 February 2010

BEIJING: Five years after losing the so-called Sino-US ‘bra wars’, China is standing firm as the Pacific rivals square up to a fresh spate of trade cleavages.

While Beijing backed down in 2005 and grudgingly agreed to quotas on its textile and garment exports to the United States, it is strapping up for a fight now.

This time, the battle is over steel pipes, tyres and chicken parts, and the roaring Dragon economy is determined to spit fire on a beleaguered Uncle Sam as trade fights look set to reach fever pitch this year.

‘There are increasingly more calls from within China to fight back against US tariffs and help local companies,’ said Professor Tu Xinquan of the University of International Business and Economics. ‘There are more voices saying, ‘We cannot always be the victim like before.”

So when the Obama administration slapped tariffs on Chinese tyre imports (35 per cent) and steel pipes (16 per cent), the Chinese government retaliated by imposing anti-dumping levies of up to 105 per cent on chicken parts from the US.

Such tit-for-tat retaliation is wildly popular at home, where 90 per cent of the Chinese public polled by state-run newspaper Global Times last November said the US was jeopardising free trade.

But more than just playing to the domestic nationalist crowd, analysts see the hardline stance as a reflection of a more assertive China, which knows that Washington has less wiggle room today after the global recession.

Just as Beijing refuses to kowtow to US pressure to revalue the yuan, it also knows that it is one of the largest holders of US bonds needed to finance America’s stimulus and recovery, and that China will be a key market for US exports.

Some analysts believe that political posturing and jockeying ahead of the leadership succession in 2012 is another factor behind Beijng’s tough front.

Making concessions at this time to foreign powers, especially to the US - in a critical area such as trade - may not be viewed favourably or secure promotions within the party, noted a Beijing-based scholar who asked not to be named.

‘In the past, China was compliant and did not stand up to the US. It gave in on areas like yuan policy and agreed in September 2007 to remove subsidies for Chinese products. This would be viewed today as cowardly and not protecting China’s national interests,’ he said.

The need to be seen as the defender of the country’s interests has also hardened Beijing’s resolve to protect its exporters and state-owned enterprises, in order to sustain growth and jobs vital for maintaining social stability.

Expectations are high, with those hurt by US tariffs desperate for the Chinese government to help them get back on level terms.

Tianjin Steel Group, which exports about half of its pipes to North America, said the tariffs have wiped out its price advantage. ‘We are trying to cope with the impact by diversifying into other markets,’ Mr. Liu Gaoyu, a senior executive at the company, told The Straits Times.

‘But we still hope that the government will continue to negotiate with the US to remove these tariffs.’

For now, though, the fights are likely to get worse before getting better.

China has been stepping up policies to promote national champions and effectively shut foreign firms out from lucrative markets such as movies, telecoms and government procurement deals in sectors like software and green technology.

US firms, which have denounced such moves as protectionism, recently petitioned the White House to intervene.

Some analysts expect trade disputes to loom large in the coming months, with sectors as diverse as paper, automobiles and even new media emerging as the likely battlefields.

The trade spats are further complicated by strained bilateral relations, with the two giants tussling over several thorny issues, such as US arms sales to Taiwan.

Guanyu 道 said...

Still, Beijing is keen to tamp down fears that an all-out trade war with the US may erupt.

Chinese Vice-Minister for Commerce Zhong Shan acknowledged that China was ‘under a lot of pressure’ - it was hit by 116 trade protection cases last year.

But he told the British media last week: ‘I’m confident this trade friction is not the dominant current of their bilateral trade.’

International relations expert Jin Canrong of Renmin University believes that China may move to cool tensions.

He said Beijing could offer Washington the juiciest carrot it has been clamouring for: allowing the undervalued yuan to appreciate in the latter half of the year when inflation becomes a greater threat.

Such a move would aid Beijing’s efforts to control rising prices and inflows of hot money. It would also help boost domestic consumption by making imports relatively cheaper.

Said Professor Jin: ‘But China will make clear that it is willing to do so only because of domestic interests, not external pressure.’