The Chinese government does not report all subsidies made to domestic industrial firms, so the Haleys plugged the holes with information from industry analysts, policy documents, non-governmental outfits and companies themselves. By looking at the gaps between end-user prices and benchmark prices, they have cobbled together numbers on many of the subsidies enjoyed by the biggest industrial state-owned enterprises (SOEs).

[...] The harm done by these subsidies to foreign competitors is ably chronicled by the Haleys. Rivals are forced to go up against national champions that enjoy subsidised inputs and seemingly free money in markets that are protected. Worse yet, the bosses of Chinese SOEs are not in business principally to make a profit: they are often encouraged by the government to pursue other goals, such as resource acquisition, foreign policies and technology transfer, regardless of cost.

Less obvious is the fact that these policies harm China as well, by nurturing unproductive and unaccountable behemoths. A recent study by Sea-Jin Chang of the National University of Singapore and Brian Wu of the University of Michigan found that new firms in China are more productive than incumbents but they are also more likely to fail. The authors blame “institutional barriers”.

Despite this uneven playing field, Xinhua has identified state-owned enterprises as “major losers” in 2012:

The top 1- market losers last year were SOEs with a combined loss of about 50 billion yuan (8 billion U.S. dollars), their financial statements revealed.

[...] Even though the bad performance of such SOEs was “understandable” amid the lingering European debt crisis and a slowing Chinese economy, experts said they believed that the companies should do more than just pointing fingers at others.

Zhang Zhaowei, an analyst with Hua’an Securities, said the iron and steel industry should not simply attribute their huge losses to the slowdown in the general economy.

He said the steel makers were too aggressive in increasing their size during the good times but still lack the capabilities of negotiating iron ore prices, leading to a worsening overcapacity in producing low-end products.

See more on state-owned enterprises via CDT.

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[...C]ommerce rarely flows shorn of politics and it has become a familiar story that Chinese investment in the U.S. is met with skepticism and sometimes hostility by Washington on a variety of grounds, ranging from intellectual property protection, to rule of law transgressions, to national security concerns. Few can forget CNOOCs 2005 ill-fated bid for Unocal that was effectively shut down by Congressional grandstanding.

But California is not Washington. Governor Brown clearly announced to his Chinese hosts that “We’re not interested in politics. We’re interested in business.” This declaration resonated clearly with the delegation zipping along more than 200 mph along high speed rail from Beijing to Shanghai as Governor Brown sought investors to bring a similar rail project to the Golden State from Los Angeles to San Francisco.

Admittedly, there are aspects of diplomacy that only the federal government is well-equipped to handle. Issues of national security flowing from military considerations or treaty alliances will always be the proper purview of the federal government. But perhaps there is an emerging division of labor such that economic diplomacy should not solely be a function of the federal government, particularly in times of partisan polarization in Washington (that can easily spill over into xenophobia).

Meanwhile, the website for the upcoming California Economic Summit has a recent post declaring Governor Brown’s mission to China “a home run”:

Governor Jerry Brown recently led the delegation of Californians to China. Kish Rajan, Director of the Governor’s Office of Business and Economic Development, took part and believes the trip can be successfully measured in three ways.

First and most importantly, for the first time in 10 years, California opened–or re-opened–the California-China Trade and Investment office in Shanghai. In 2003, the trade office was closed down. Since then, business leaders and economic developers have been urging for it to return.

[...]Rajan’s second measure of success: relationships that were formed with each of the members of the delegation and Chinese investors.

[...]The last, but certainly not the least, measure of success comes on the policy front. Governor Brown made it a top priority to address climate change.

For more on the economic relationship between California and China and the case for encouraging more California-bound Chinese FDI, see a study by the Rhodium Group. For an overview of the political barriers to Chinese FDI in the U.S., listen to the Caixin podcast  ”Chinese FDI in the U.S.: Separating Politics from Reality“. Also see prior CDT coverage of California and foreign direct investment.

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The California-China Office of Trade and Investment was launched in Shanghai on Friday as the US state’s first foreign trade office in a decade, to attract China’s huge foreign investment pool and bolster trade between the state and China.

“California is the gateway to the Pacific and this office in Shanghai will enhance trade collaborations and offer more employment opportunities for both sides,” said California Governor Jerry Brown at the opening ceremony.

The office will serve as a hub for Californian companies interested in entering or expanding in China, the world’s second-largest economy, and Chinese companies seeking investment opportunities in California, the world’s ninth largest economy by GDP.

As trends in the global flow of foreign direct investment (FDI) begin to change, China is becoming a major source of outbound funds. California’s developed industries are an attractive landing point for Chinese firms looking to move up the value-added chain, and the state is hoping to reap the economic benefits that could come with fresh Chinese capital. The Economist looks at California’s historical relationship with China, noting Governor Brown’s keen interest in attracting Chinese investment to the Golden State and the barriers that have been known to block Chinese FDI:

CALIFORNIA’S economy was almost twice the size of China’s when Jerry Brown last visited, in 1986. Today, the governor of America’s biggest state (and the world’s ninth-largest economy, down from seventh in 1986) is the first to admit that things look different, as he and a 90-strong business entourage embark on a week-long trade and investment tour of China. Chinese investors, reckons Mr Brown, have $400 billion-$500 billion burning a hole in their pockets. “They like our almonds, our wine, our brains,” he says. “Instead of buying T-bills in Washington, they should be investing in California.”

[...]But Chinese investments in the United States can jangle nerves. Security concerns in sectors like telecoms may be legitimate, but can also be used as a smokescreen for protectionist impulses. The memory of a state-owned Chinese firm’s attempt to buy Unocal, a Californian oil company, in 2005, is fresh among many Chinese executives, says Mr Hanemann. That bid collapsed after fierce opposition from American congressmen, including Californians.

One project Governor Brown wants China’s help with is a proposed high-speed railway - a project lacking funds due to  opposition from House Republicans. The governor and his delegation have been using China’s massive high-speed rail network for travel on their tour, and also to gather publicity and financial support for the embattled project back home. The LA Times reports:

SHANGHAI — Gov. Jerry Brown’s trade mission to China this week is intersecting with one of the most controversial issues of his governorship: California’s $68-billion bullet train.

[...]A few potential vendors have already expressed interest. California rail board chief Dan Richard is set to meet Saturday with the China Railway Construction Corp., the country’s second-largest government-owned construction concern.

On Thursday evening, Brown, Richard and representatives of California-based railroad companies rode China’s sleek bullet train to this bustling port city from Beijing, a five-hour trip that covered about 750 miles, roughly the distance from San Diego to the Oregon border. Strolling the aisles, shaking hands with Chinese passengers, Brown extolled the nation’s 5,000-mile complex of high-speed rail, built in the last seven years.

“People here do stuff,” the governor said. “They don’t sit around and mope and process and navel-gaze. The rest of the world is moving at Mach speed.”

While covering the trade mission for Sacramento-based ABC-affiliate KXTV, political editor John Myers has been tweeting his experiences with Governor Brown on China’s high-speed trains:

And we’re off. High speed train with a revved up @jerrybrowngov on board.We just hit 306 km/hr…abt 190 miles/hr. Very smooth ride.

— John Myers (@johnmyers) April 11, 2013

Chatting as bullet train cruises at abt 185 miles/hr, @jerrybrowngov tells us he’ll be walking the aisles over 5hr trip 2 stretch his legs. — John Myers (@johnmyers) April 11, 2013

.@jerrybrowngov rides, and praises, China bullet train.My #News10 #CAChina dispatch from Shanghai ow.ly/jYn28 — John Myers (@johnmyers) April 11, 2013

72 hrs left in #CAChina trade trip. @jerrybrowngov back on bullet train 2 Nanjing, then flight 2 Guangzhou. — John Myers (@johnmyers) April 14, 2013

At Nanjing station, high speed rail lines next to train carrying cars of coal. @jerrybrowngov talking climate chg a lot on #CAChina trip — John Myers (@johnmyers) April 14, 2013

On the train from Shanghai, @jerrybrowngov continued his “look at all the construction” marveling he’s been doing on #CAChina trip.

— John Myers (@johnmyers) April 14, 2013

For more on the benefits that California could see from increased Chinese FDI and the political obstacles standing in front of those benefits, see an in-depth study from the Rhodium Group, and a podcast from Caixin. Also see prior CDT coverage of California.

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The council voted 15-0, with no debate, to adopt a resolution drafted by the U.S. and China in the aftermath of the Feb. 12 underground blast.

North Korea “will exercise the right to a preemptive nuclear attack to destroy the strongholds of the aggressors and to defend the supreme interests of the country,” a foreign ministry statement carried by the official Korean Central News Agency said today. It warned the UN “not to make another big blunder.”

“We take all North Korean threats seriously enough to ensure that we have the correct defense posture to deal with any contingencies that might arise,” Glyn Davies, the U.S. special representative for North Korea policy, said today after testifying to the Senate Foreign Relations Committee.

China’s enforcement of sanctions is crucial, said Davies. China “remains central to altering North Korea’s cost calculus,” he said in testimony. “Both geography and history have endowed the People’s Republic of China with a unique —- if increasingly challenging -— diplomatic, economic, and military relationship” with North Korea.

Despite the unanimous support for tougher sanctions on Pyongyang, China’s Foreign Minister, Yang Jiechi, says sanctions are not the solution to North Korea. From The Voice of America:

Yang says China has always believed that sanctions are not the end goal of the Security Council’s actions or the fundamental way to resolve the issue. Yang was speaking at an annual press conference held on the sidelines of the country’s legislative meetings, or National People’s Congress.

The fresh sanctions include new measures to block bulk transfers of cash that are being used to support alleged illicit activities by the North, and further restricts ties to North Korea’s financial sector. They also call for a crackdown on suspicious cargo from the North, among other measures.

Some analysts believe that Beijing’s support of the new round of sanctions is a sign it is growing increasingly frustrated with the North. Others, however, are skeptical how far Beijing will go to implement them.

Yang’s press conference lasted about an hour and a half, and touched on a wide range of topics from China’s relations with Russia, Africa and Europe.

According to The New York Times, Yang has remarked that China will not forsake North Korea:

 China’s foreign minister said Saturday that Beijing would not abandon North Korea, reiterating China’s longstanding position that dialogue, not sanctions, is the best way to persuade the North to abandon its nuclear weapons.

The clearest sign of China’s exasperation with North Korea came Thursday at a side session of the Chinese People’s Political Consultative Conference, an advisory group to the government that was open to the news media.

Delegates to the conference, according to a senior Communist Party official, Qiu Yuanping, talked about whether to “keep or dump” North Korea and debated whether China, as a major power, should “fight or talk” with the North.

The extent to which China will enforce the new United Nations sanctions remains unclear, an expert on the North Korean economy, Marcus Noland of the Peterson Institute for International Economics in Washington, wrote in a blog post. There are plenty of loopholes for China to exploit if it wanted to, he noted.

Amid these calls for calm and restraint on North Korea, some analysts say that Beijing’s patience with Pyongyang is wearing thin. The Telegraph reports:

Zhang Liangui, a Korea expert at the Central Party School, which trains Communist cadres, said the protests in Pyongyang showed that North Korea is “mobilising its citizens for war” and that the situation was “hugely tense”.

He added that North Korea was pushing shut the gate to negotiation with any outside party, including China.

Li Kaisheng, a professor of International Relations at Xiangtan university said the UN resolution mainly focused on stopping “the luxurious life” of North Korea’s leaders.

“The mutual interest between China and North Korea has become non-existent, and China will not provide unconditional support to it, so any war will inevitably lead to the collapse of the North Korean regime,” he said.

While CDT previously reported on an increase in trade between China and North Korea in 2011, Reuters reports trade growth between the two countries has slowed sharply in 2012:

Trade between the two countries rose an annual 5.4 percent in 2012 to a total of $5.93 billion, compared with 62.4 percent growth in 2011, according to a report released on Thursday by the Korea International Trade Association (KITA).

North Korea does not release any economic statistics.

The trade body said the fall was due lower global prices for coal and steel– the of the two main resources China imports from North Korea – and due to weaker demand as China’s economy grew just 7.8 percent in 2012, its weakest level since 1999, the report said.

“North Korea’s economic reliance on China is expected to become heavier in the future, with the gap between bilateral trade with South Korea and China growing wider,” the association said.

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“It’s all ready. A fourth and fifth nuclear test and a rocket launch could be conducted soon, possibly this year,” the source said, adding that the fourth nuclear test would be much larger than the third, at an equivalent of 10 kilotons of TNT.

The tests will be undertaken, the source said, unless Washington holds talks with North Korea and abandons its policy of what Pyongyang sees as attempts at regime change.

North Korea worked to ready its nuclear test site, about 100 km (60 miles) from its border withChina, throughout last year, according to commercially available satellite imagery. The images show that it may have already prepared for at least one more test, beyond Tuesday’s subterranean explosion.

“Based on satellite imagery that showed there were the same activities in two tunnels, they have one tunnel left after the latest test,” said Kune Y. Suh, a nuclear engineering professor at Seoul National University in South Korea.

Chinese state media outlet Global Times says China needs to find the right way to punish North Korea:

Washington, Seoul and Tokyo are anxious to see China change its North Korean policy. Since Pyongyang’s nuclear test has damaged China’s interests, it’s necessary for China to give Pyongyang a certain “punishment.” The key problem is what the extent of this punishment should be.

Beijing should punish Pyongyang, but should also try to avoid being the focus of North Korean and global public opinion. The reduction in China’s assistance to North Korea shouldn’t be more prominent than the increase in sanctions by the US, Japan and South Korea. This should be the bottom line for China to participate in international sanctions against North Korea.

The Korean Peninsula has remained in a Cold War state. The West tends to perceive the North Korea issue from an ideological perspective, and the US has its own strategic considerations on the peninsula. The nuclear issue has become a time bomb. Both North Korea and the US, Japan and South Korea should take the blame for this. It’s unreasonable if Washington, Tokyo and Seoul don’t make any changes but demand that China change its attitude toward North Korea.
China should stick to being a mediator in the nuclear issue, and not join any side to confront the other. It’s possible that tensions on the peninsula will further escalate and a war could break out. China should prepare itself for any extreme situations, which is important for it to safeguard its security and not be held hostage by either side.

While China has urged the UN for prudence on North Korea, some Chinese are beginning to sour towards their friendship with Pyongyang. From The New York Times:

At home and abroad, China has long been regarded as North Korea’s best friend, but at home that sense of fraternity appears to be souring as ordinary people express anxiety about possible fallout from the test last Tuesday. The fact that North Korea detonated the device on a special Chinese holiday did not sit well, either.

Among Chinese officials, the mood toward the young North Korean leader, Kim Jong-un, has also darkened. The Chinese government is reported by analysts to be wrestling with what to do about a man who, in power for a little more than a year, thumbed his nose at China by ignoring its appeals not to conduct the country’s third nuclear test, and who shows no gratitude for China’s largess as the main supplier of oil and food.

“The public does not want China to be the only friend of an evil regime, and we’re not even recognized by North Korea as a friend,” said Jin Qiangyi, director of the Center for North and South Korea Studies at Yanbian University in Yanji City. “For the first time the Chinese government has felt the pressure of public opinion not to be too friendly with North Korea.”

Other experts suggested the test could worsen relations between the North and China and urged China’s new leadership to consider taking a tougher stance to curb the North’s nuclear weapons program, which appears to be advancing after some early technical difficulties.

Despite China’s open criticism of North Korea, NKNews.org reports that China’s trade with North Korea has reached a record high. CDT previously reported despite the tensions between the two countries due to failed business ventures, North Korea’s trade with China has increased:

[...] Despite crippling sanctions related to the North’s missile and nuclear programs, some of which China has agreed to enforce as a member of the UN Security Council, bilateral trade between the two has increased to a record high of $6.03 billion – twelve times the 2000 total.

Much of this growth has been driven by natural resources, with China remaining the North’s main source of oil, while the North’s primary export to China is minerals, especially iron ore. The North has also begun upgrading its poor information and communication infrastructure, with computer and component imports from China growing an average of 61% per year between 2005 and 2010.

However, there is also a significant consumer aspect that cannot be measured because much of it derives from the underground trade in everything from Chinese electronics and clothes to bootleg copies of movies and tv shows. This trade continues to thrive, despite reported border closures and increased security.

Still, while some analysts saw the most recent nuclear test as a possible breaking point for the Chinese, initial statements point to continuation rather than reexamination of their approach, at least for the time being. China has continued to expand trade with North Korea largely for strategic reasons, and despite the poor investment climate and provocations, the benefits still outweigh the costs. Some of this is based on geopolitical considerations. The most oft-heard argument is that North Korea acts as a buffer state between China and the US-allied South, but this is perhaps a bit overstated. The simpler geopolitical reason remains that, mercurial and unpredictable as it is, North Korea remains China’s only ally in the region, and is not to be discarded easily.

As trade of legal goods increase, The Economist reports that illegal items, such as crystal meth, are also crossing the border:

Fuel, rice, wheat and basic consumer goods all flow legally, usually by lorry over bridges on the Yalu, into North Korea. Imports from the North include minerals, coal, scrap metal and seafood. There is also a thriving black-market trade both ways, usually by boat. This feeds the growing demand for other non-staple products among the new North Koreannouveaux riches. Border police, especially in the North, are known to take bribes to allow illicit trade to pass. One illegal North Korean export causing social problems is crystal meth, a drug known in China as bingdu, or “ice”. If China’s government clamps down on official trade with the North to express its displeasure at the nuclear test, the result will only be more smuggling, says a local who has invested in North Korean minerals. Illicit trade brings its own problems. North Korean border guards shot dead three Chinese smugglers in 2010, and tensions remain.

Meanwhile, as goods flow into North Korea, people continue to flow out. Some come legally to work in North Korean restaurants in Dandong and will return home. Outwardly they are unswervingly loyal—“China is all right, but North Korea is better,” says one—but local Chinese say they are more confident and chatty than before. Many more flee illegally across the river and live in secret in China or try to make it to South Korea, often through a third country. Tesco, a British supermarket chain, has a store in Dandong with a special section offering “Korean food”—mainly imported from South Korea—that an employee says specifically caters to North Koreans.

Wealthy tourists from elsewhere in China pay for boat rides on the river or can even book a trip into North Korea itself, perhaps to remind themselves how far China has come. Others buy cigarettes and trinkets labelled as North Korean but, according to locals, actually made in China. There is sympathy for North Koreans, but no-one wants to miss a good business opportunity.

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Recent data from the world’s two largest economies show that Chinese trade in goods and services reached $3.87 trillion in 2012, according to the General Administration of Customs, while the value of US exports and imports was $3.82 trillion, according to the US Commerce Department.

The ministry said, however, that China’s combined export and import volume from last year is below that of theUS when the same method of measurement is used.

A ministry official, who wasn’t identified, said on Wednesday the Commerce Department released two sets of figures for US trade last year: $3.82 trillion based on the country’s international balance of payments, and $3.882trillion based on a measurement similar to that used by the World Trade Organization. Only the smaller number was compared with China’s volume.

The official said the WTO’s annual trade report, which will be released within a month, will show a continued 1-2 ranking of the US and China.

At South China Morning Post, Tom Holland provides further details, explaining why reports that China is now the world’s biggest trading economy are wrong:

The most obvious way they are wrong is because China’s import and export numbers are heavily distorted by domestic companies fiddling their taxes.

Under mainland regulations, exporters of electronic gadgets and other widgetry can claim a value-added tax rebate worth 17 per cent of the goods’ value.

What’s more, under the Closer Economic Partnership Arrangement, no tariffs are charged on goods imported into the mainland from Hong Kong, provided the importer claims a relatively small component of value was added in the city.

As a result, mainland companies ship huge quantities of goods to Hong Kong, where their value is marked up by around 20 per cent before they are re-imported back into the mainland.[...]

A brief from The Economist looks at the numbers contested above, noting that even if they are accurate, the U.S. remains the global leader if services are included in the count:

[...]New figures show that America’s imports and exports of goods amounted to $3.82 trillion in 2012, compared with China’s $3.87 trillion (see chart). These figures count only trade in objects (ingenious or mundane). If services are added, America retains its lead for the moment. Tax dodges may also inflate China’s numbers, but its trade networks are spreading.[...]

Another recent piece on the topic from South China Morning Post notes that the Ministry of Commerce is also condemning recent U.S. sanctions on Chinese military firms for disrupting international trade norms:

Meanwhile, Beijing said the US was disrupting international trade by slapping sanctions on Chinese firms.

[...]In a separate report, Xinhua said Shen Danyang, a Ministry of Commerce spokesman, accused the US of disrupting the “normal order of international trade” and harming Chinese companies’ interest by imposing sanctions under its non-proliferation laws.

China urged the US to correct its “erroneous practice”, Xinhua said.

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The country’s textile mills are importing more cotton than many investors and analysts had expected. This large appetite for imports from the world’s biggest cotton consumer, combined with rising consumption of the fiber globally and a decrease in U.S. plantings, has fueled a rally in cotton prices.

For much of past year, China snapped up cotton for its strategic stockpiles, which are forecast to be at a record level at the end of the current marketing year on July 31.

“Chinese demand is going to be a big player” in the cotton market, said Jimmy Tintle, a speculative investor and chief executive at consulting firm GreenKey Alternative Asset Services in Longwood, Fla. “And I’m not looking for weaker demand, that’s for sure.”

The average price at China’s auctions through Feb. 1 has been $1.3534 a pound. Cotton imports cost mills about the same, taking transport costs, a 40% duty and taxes into account, according to cotton traders and merchants. Imported cotton tends to have longer fibers, which mills covet because it makes the fiber easier to spin and dye.

Despite China’s increased demand for cotton, Cotton crops are heading for their biggest drop in more than two decades,  Bloomberg reports:

Crops will tumble 11 percent, the most since 1993, to 23.2 million metric tons in the year beginning Aug. 1, data from the International Cotton Advisory Committee show. Farmers will reduce sowing to 31.58 million hectares (78 million acres), a 7.7 percent decline and the largest in 11 years, according to Washington-based ICAC, which represents 41 governments. By July 2014, stockpiles will shrink 4.9 percent to 15.9 million tons, the first reduction in four years, the group’s data show.

“China will want to import some cotton that the world doesn’t have to give next season,” said Peter Egli, director at Chicago-based Plexus Cotton Ltd. “Prices will have to go higher to satisfy mill demand and China imports,” he said in a telephone interview.

Chinese imports jumped 75 percent in December from the previous month to 532,177 tons, a third monthly gain and the longest run of increases since September 2011, customs data show. Foreign purchases will reach 3.05 million tons in the year through July, 12 percent more than the 2.72 million tons predicted in January, the USDA said Feb. 8.

“Textile makers, especially those of us who are export- focused, have little choice but to use machine-picked high-end imported raw material,” Kong Jia, a manager at Hebei Xindadong Textiles Printing & Dyeing Co., said by phone from Shijiazhuang in northeastern China. “The government is trying to offload part of the huge stockpiles, but textile makers aren’t enthusiastic about buying that cotton because the quality and price aren’t attractive.”

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“A lower comparative base last year caused by fewer working days has helped push up the growth rate this year,” said Li Jian, a foreign trade expert from a research institute at the Ministry of Commerce (MOC).

Imports continued a recovering trend due to a warming domestic market. Imports of iron ores,coal and steel, which are mainly consumed by domestic infrastructure projects, increased sharply last month, said Chen Hufei, a researcher at the Bank of Communications.

Friday’s data showed that China’s foreign trade with the European Union rose 10.5 percent year on year last month to stand at 47.14 billion U.S. dollars.

Trade with the United States increased 23.4 percent to $43.72 billion. Trade with the Association of Southeast Asian Nations grew 42.9 percent to reach $36.99billion. Trade between China’s mainland and Hong Kong surged 83 percent to $33.4 billion.

According to The Telegraph, China has surpassed the US to become the world’s biggest trading nation:

The total value of US exports and imports in 2012 was $3.82 trillion (£2.4 trillion), the US Commerce Department has revealed. China’s customs administration has already announced that the country’s total trade last year was worth $3.87 trillion.

Not only has China managed to post a larger total trading figure, but the breakdown of imports compared with exports also makes for favourable reading in Beijing. China had a full-year trade surplus of $231.1bn with the US posting a total 2012 trade deficit of $727.9bn.

However, activity across the Chinese economy was impressive, with sales of passenger cars over the month soared to their highest ever. China’s auto sales jumped 46.4pc compared with January 2012 to a record monthly high of 2.03m units, the China Association of Automobile Manufacturers (CAAM) said. Vehicle output also hit a new monthly high, surging 51.17pc to 1.96m units.

French bank Société Générale said last month there still is a chance of a “hard landing,” with growth dropping below 6pc, which would be dangerously low for China.

While China boosts its foreign trade, analysts say China’s growing influence could be a threat, from Bloomberg:

China’s growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.’s Jim O’Neill.

“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe.”

“It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume,”Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. The increase isn’t all the result of an undervalued yuan fueling an export boom, as Chinese imports have grown more rapidly than exports since 2007, he said.

“One way or another we have to get China more involved in the global organizations of today and the future despite some of their own reluctance,” O’Neill said, mentioning China’s inclusion in the IMF’s Special Drawing Rights currency basket. “To not have China more symbolically and more importantly actually central to all these things is just increasingly silly.”

CDT previously reported on the manufacturing shift that had certain products made in the US but sold in China. Reuters reports although imports from China to the US hit a record high last year, America’s exports to China also increased:

Prices for U.S. stocks rose as investors were impressed by a batch of strong trade data, which included readings showing stronger exports and imports by China during January as well as the U.S. figures for December. Prices for U.S. government debt fell.

While the overall deficit shrank last year, it grew with China, raising the hackles of U.S. manufacturers who feel Beijing gives its exporters an unfair edge by keeping its currency undervalued.

America’s December trade deficit with China for goods, which was not seasonally adjusted, narrowed by $4.5 billion on a drop in imports.

Read more about trade in China, via CDT.

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“When it comes to Africa, the US and Europe think about aid, whereas the Chinese think about trade. They have a very organised vision of what they want,” says Deborah Brautigam, author of The Dragon’s Gift: The Real Story of China in Africa, from Washington, DC.

“Over the last five or six years there has been a huge increase in engagement between China and Africa across all fronts: trade, loans, finance, migration.”

Nowhere is this more evident than in Little Africa where, in among the city’s wholesale textile markets and electronics stores, black faces are almost as numerous as Asian. English is the common language of trade, though you can also hear French, Igbo (an ethnic language of Nigeria) and Cantonese.

There are at least 20,000 Africans, mostly from West African nations such as Nigeria, Ghana and Mali, living legally in Guangzhou, a city of about 12 million. The number could be as high as 150,000 if you include the many illegals and those temporarily in the city chasing business opportunities.

See also Brautigam’s comments on the article and more on Africans in China via CDT.

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Post tags: Africans in China, diaspora, Ghana, Guangzhou, Mali, migration, Nigeria, trade
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A new report says North Korea’s trade with China accounted for more than 70 percent of its total commerce last year, as the isolated nation deepens its reliance on its only major ally.

South Korea’s national statistics office said Thursday that Pyongyang’s bilateral trade with Beijing totaled over $5.6 billion in 2011. That is an increase of over 60 percent from the previous year.

Seoul says it is the first time that North Korea’s trade with China has topped 70 percent of its global commerce since it began tracking trade figures in 2000.

Meanwhile, the economic gap between South Korea and North Korea continues to be large. The report found South Korea’s gross national income per capita ($1239) was nearly 19 times that of the North in 2011.

According to the Los Angeles Times, analysts predict 2012 will be another year of trade expansion:

The dramatic increase reflects a conscious decision by Beijing in 2011 to prop up its failing ally. Shortly before his death a year ago, North Korean leader Kim Jong Il made three trips to China to secure support for rebuilding his ruling Workers’ Party, the equivalent of the Communist Party in China. The Chinese also have been keen to prop up Kim’s 29-year-old son and successor, Kim Jong Un.

“This is just the beginning of further big increases in Sino-North Korea trade,” explained John Park, an expert in China-Korean relations at MIT University. “The primary goal of the Communist Party of China is to more effective manage what is referred to as the North Korean instability variable.”

Park said that North Korean state trading companies are working in China, which enables the regime to generate new sources of revenue for its own ruling elite.

With Chinese help, the North Korean economy grew for the first time in three years, albeit a modest 0.83%. In the last year, Pyongyang has undergone its first significant facelift in decades, adding modern apartment blocks, a new airport terminal, stores and restaurants and a dolphinarium to the North Korean capital.

As trade increases, North Korea’s dependence on China also grows. The South China Morning post reports Beijing’s new politiburo may deal more firmly with Pyongyang:

Rising officials who hail from the northeastern provinces of Liaoning , Jilin and Heilongjiang understand the importance of perseverance to advance China’s agenda of North Korean economic reform. These officials, represented by Zhang Dejiang and Li Keqiang , now on the Politburo Standing Committee, and Sun Zhengcai in the larger Politburo, spent their formative years in close proximity to North Korea, and benefited from their time in local governments with long-term cross-border interactions with North Korean counterparts. They appreciate that patience and constant pressure are key to promoting reform in Pyongyang. This new generation of leaders is ostensibly better informed on North Korean issues and this fact may lead to some policy nuance – if not policy changes – from China.

Although the new leadership has made vague statements on North Korea (even after Pyongyang’s latest, controversial satellite launch), Chinese academics close to the matter are a useful gauge of the temperature in Beijing policy circles. These academics include Zhang Liangui of the Central Party School, Zhu Feng of Peking University, and Lu Chao of the Liaoning Academy of Social Sciences, among others. These Chinese experts who are allowed and encouraged to comment about North Korea in mainland news media have not been entirely favourable. Zhang Liangui publicly raised questions about reconsidering China’s policy towards Pyongyang just before North Korea’s missile launch in April. Even more telling, Zhang, another Kim Il-sung University alumnus, conducted this public debate in English.

Xi Jinping’s public comments suggest that the military elements of the alliance will remain strong, but within limits. China will reluctantly tolerate space rockets even though these launches enrage regional rivals, and will likely tolerate small-arms and weapons development within limits; it’s in China’s interest to keep the Korean People’s Army on its feet.

Although trade with North Korea has increased, China’s trade with South Korea has declined, from The Washington Post:

While Pyongyang’s economic exchange with Beijing has been on the rise since 2009, its trade with Seoul, North Korea’s second-biggest trade partner after China, has declined. About 20 percent of North Korea’s overall trade was with the South in 2011.

The national statistics office releases an annual report on North Korea’s economy, energy, trade, population and natural resources based on figures from various agencies at home and abroad. It releases the previous year’s data at the end of the following year. The figures for 2012 will become available toward the end of 2013.

North Korea’s trade data was gathered from official statistics figures in overseas countries through KOTRA, the Korea Trade-Investment Promotion Agency, the office said.

The office said North Korea’s population is estimated at 24.3 million as of 2011, about half of South Korea’s 49.8 million. Its economy expanded 0.8 percent in 2011 over a year earlier, while South Korea’s economy grew 3.6 percent.

© Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: North Korea, North Korea relations, North Korea trade, south korea, trade
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Between 1784, when the Empress of China blazed the trail, and the end of the War of 1812, nearly three hundred American ships made a total of 618 voyages to Canton.

These ships carried cargoes of ginseng, sea otter and fur seal skins, opium, sandalwood, and Spanish silver dollars, which were used to purchase Chinese tea, silk, porcelain, and other exotic items.

[…] The China trade was an early engine of American investment. The most prominent and successful China merchants plowed their millions into a wide array of business ventures—including railroads, banks, and mining ventures—that helped build America’s nineteenth-century economic and industrial might. And many China merchants invariably became philanthropists, leaving behind lasting legacies.

[…] So, when you read the heated, and often overblown news coverage on the tribulations of the modern China trade, bear in mind that we have been trading with China for more than 225 years, and in many ways, that has been a good thing.

See more on Sino-U.S. relations via CDT.

© Mengyu Dong for China Digital Times (CDT), 2012. | Permalink | One comment | Add to del.icio.us
Post tags: history, trade, U.S. relations, United States
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Overseas investors will also be barred from engaging in river shipping, including through the use of Chinese vessels, according to a statement posted on the government’s website yesterday. The ban, which comes into effect Jan. 1, doesn’t apply to vessels registered in Hong Kong, Macau and Taiwan.

The new rules are designed to help promote a “healthy” domestic shipping sector and to ensure safety standards, according to the statement. The government also this month announced tax and financial support for local shipping companies after China Cosco Holdings Co. (1919) and China Shipping Container Lines Co., the nation’s largest listed operators, both posted wider first-half losses.

Shippers will be able to seek exemptions from the transport ministry for using foreign ships if there is a capacity shortage, according to the statement. Otherwise, companies found to be using overseas vessels on rivers will face penalties including fines of as much as 1 million yuan($160,000), it said.

About 1.5 billion tons of cargo were shipped along the Yangtze in 2010, China Daily said in May 2011, citing the Changjiang (Yangtze River) Administration of Navigational Affairs. That’s more than three times the amount carried on the Mississippi River, it said. The river runs 6,300 kilometers (3,915 miles) to Shanghai from Tibet.

As China prohibits overseas investors from sailing the domestic rivers, the ban also includes Chinese companies use of foreign ships, from Reuters:

China is to prohibit domestic companies from operating foreign-made ships on domestic waterways and will block foreign shipping service firms from selling services in China, according to regulations issued by China’s State Council.

Foreign shipping service enterprises are also banned from hiring Chinese ships or shipping space, “or using other means to covertly operate waterway transport services”.

Chinese operators are also restricted from using foreign boats, unless there is a shortage of Chinese ships and the company gets permission from the State Council.

© Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | One comment | Add to del.icio.us
Post tags: economic slowdown, global economic slowdown, shipping, trade, waterways, Yangtze River
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The W.T.O. case accuses China of providing at least $1 billion worth of subsidies from 2009 to 2011 for exports of autos and auto parts. While China exports virtually no fully assembled cars to the United States, it has rapidly expanded exports to developing countries, and those exports compete to some extent with cars exported or designed in the United States.

[…] Auto parts employment in the United States has dropped by about one-half from 2001 to 2010, as imports from China grew nearly sevenfold over the same period, according to data provided by the senior official, who insisted on anonymity citing an administration policy banning on-the-record comments on a new policy before an official announcement is made. Auto parts manufacturers directly employ 54,200 people in Ohio, and when suppliers like steel makers are included, the auto industry accounts for 850,000 jobs in the state, or 12.4 percent of total employment there.

Mark Landler further discusses the delicacy of handling U.S.-China economic ties in an election year. From The New York Times:

It is the latest in a string of trade actions against China taken by the Obama administration, and the second announced by the president on the eve of a campaign visit to Ohio, where the auto parts industry employs 52,400 people. In July – just before he flew to Toledo, home of a Jeep Wrangler factory – the White House filed a complaint against Beijing for levying $3.3 billion in duties on American automobiles.

[…] Mr. Romney fired back even before Mr. Obama spoke, accusing him of doing “too little, too late” to curb China’s unfair trade practices. The latest trade case, Mr. Romney said, was little more than a campaign stunt, failing to compensate for his unwillingness to take other actions, like labeling China a currency manipulator.

[…] Bashing China is a tried-and-true campaign strategy for both parties, particularly in swing states like Ohio, where a heavy loss of manufacturing jobs has coincided with a surge of Chinese-made auto parts into the United States.

Meanwhile, China has also taken to the W.T.O to fire back. From Tom Miles and Michael Martina at Reuters:

China filed a complaint at the World Trade Organization on Monday to challenge a new U.S. law on “countervailing duties”, or tariffs intended to combat export-promoting subsidies.

[…]Commerce Ministry spokesman Shen Danyang said China hoped the United States could “correct its mistaken policy and appropriately resolve China’s concerns”.

“China has, under various circumstances, repeatedly reiterated that it resolutely opposes the abuse of trade remedy regulations, opposes trade protectionism, and will staunchly exercise its WTO-member rights to protect the legal rights of its domestic industry,” Shen said.

See also a previous W.T.O case against China under the Obama administration, via CDT.

© Mengyu Dong for China Digital Times (CDT), 2012. | Permalink | One comment | Add to del.icio.us
Post tags: exports, protectionism, subsidies, trade, trade disputes, U.S. relations, United States, WTO
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Up until June 1, Japanese and Chinese firms had paid currency conversion fees twice in trade and other bank transactions. Japanese companies first had to convert the yen into the dollar, then they exchanged the dollar for Chinese currency. For Chinese firms, it was vice versa. With this removal of the interim step by skipping the dollar in transactions, many expect cost reductions.

The agreement marks a step in the Renminbi’s internationalization, with which “it will become more and more difficult for China to control the value of the yuan,” said Karakama Daisuke, Market economist at Mizuho Corporate Bank. Tokyo therefore hopes to benefit from the correction of China’s alleged currency manipulation. From the Asia-Pacific Journal article:

For Tokyo, direct trading confers a favor of incorporating China’s dynamic growth more effectively and economically. The possible future correction of China’s still artificially undervalued yuan may also result in a weaker yen, boosting the competitiveness of Japanese exporters such as Toyota and Sony in the long term.

Read more about the yuan’s exchange rate on China Digital Times.

© Mengyu Dong for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: currency manipulation, Japan relations, rmb, trade
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Chinese President Hu Jintao and US President Barack Obama reached important consensus on establishing a mutually beneficial cooperative partnership in 2011, giving “clear direction on the development of Sino-US economic and trade relations in the new period,” the official said.

In future, China will carry out a more positive opening-up policy, Gao said, noting China’s import scale will hopefully exceed $8,000 billion in the next five years and its trade partners including the US will share its business opportunities.

Thirdly, Gao pledged to improve levels of two-way investment, promising, “We will continue to positively attract foreign investment, step up the opening-up of the market, and try to address US concern on IPR (intellectual property rights) protection, industrial policy and investment environment.”

Fourthly, Gao vowed to expand bilateral industrial cooperation. “China will work with the United States to explore the feasibility of cooperation in the fields of energy saving, environmental protection, IT, biology, high-end equipment manufacturing, new energy, new materials, new-energy vehicles, medicine, medical equipment and tourism,” he said.

Although Gao has admitted that the trade imbalance is a fact, some believe that during Xi’s visit this issue will cause some tension. AFP reports:

Xi, the country’s leader-in-waiting, is likely to face a barrage of complaints over China’s allegedly discriminatory trade policies when he visits the United States in the coming week.

Trade tensions between the world’s two largest economies are on the rise as US President Barack Obama seeks to spark economic growth and create jobs — and bids for re-election — by attacking the deep US trade deficit with China.

The US trade deficit with China reached a record high of more than $295 billion in 2011, according to US figures.

Analysts say Obama’s pledge last month to launch a trade enforcement unit likely to focus on China and a new sweeping complaint against Beijing by the US auto parts industry are raising tensions.

See more about Xi Jinping via CDT.

© Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: Gao Hucheng, trade, U.S. relations, Xi Jinping
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