World Crisis Online

By CSC staff, Shanghai 2009 turned out to be a bumper year for exports from China

On New Year’s Day, US Nobel economist and New York Times columnist Paul Krugman wrote in that paper an article titled Chinese New Year, advocating the implementation of trade sanctions against China, which many Chinese analysts take to be a call for a declaration of trade war against China.

The Chinese New Year-the coming year will be the Year of Tiger-is around the corner. This January has already seen a quick rebound of import and export data. China’s exports in January grew for the second consecutive month, increasing 21% from a year earlier, while imports expanded 85.5% in its third straight month of growth, government data showed Wednesday. The fast growth of foreign trade is due to over 30% growth of M1 for several consecutive months, indicating that industrial activity has been increasing with rising demand for raw materials and the improvement of the external environment, all of which is reflected in new orders to enterprises.

The State Information Center’s (SIC) February 5 report announced that China’s imports and exports, imports in particular, are expected to show sharp recovery growth in the first quarter. Exports and imports are expected to increase by about 16% and 32%, respectively, over the same period last year, and China’s trade surplus is expected reach around $43 billion, down around 31%.

Among the many reasons for January’s high import and export data is, first and foremost, last January’s low base. Spring Festival, the Chinese New Year and China’s major holiday, occurred last January, and last January was the single month in which China’s imports and exports were most greatly hurt by the US financial crisis.

The SIC report says the world economy is still in the inventory covering stage of the cycle. Most countries will be increasing product purchasing and global trade growth will build. Whether the high-growth trend of import and export in January will continue, however, depends on international market demand. Uncertainties abound for 2010.

The US economy still lacks support for strong recovery and growth momentum. Estimates are that US demand will show a high-low trend, which means for China that export orders will rise fast in the first half year, but whether this will continue in the second half is anybody’s guess.

As growth accelerates in foreign trade, however, China’s exports may be targeted by trade sanctions. In US President Obama’s State of the Union address, he referred to making efforts for economic recovery and US export expansion, and the RMB exchange rate issue will become a key issue in this year’s Sino-US economic dialogue.

The core issue of the President’s speech was employment, which points to greater pressure on bilateral trade. It will bear weight in this year’s US mid-term election, not only as an economic issue but also as a political bargaining chip for Obama. The worst time for China’s economy has passed, but trade conflicts and political issues may prove more complex. The Sino-US trade imbalance and exchange rate and intellectual property issues, as well as economic structural adjustment, will acquire greater focus as the election nears.

Trade friction between the two giants is growing. After a February 5 preliminary ruling by China’s Ministry of Commerce that US trade in white feather chicken products amounted to dumping, the US immediately countered with a 231% anti-dumping duty on gift boxes and packaging ribbons imported from China mainland. China complains that this move was obvious retaliation. Once implemented, China’s gift boxes and packaging ribbons may have to quit the US market.

Since the tire safeguard case last September, Sino-US trade disputes have become more intense. On December 30th, the US International Trade Commission ruled to levy tariffs on China’s oil well pipes, involving more than 90 Chinese steel enterprises and $2.7 billion, the largest US trade sanction against China by far. Since January, the US has levied high anti-dumping duties on Chinese-made wire mesh trays and electric blankets, and launched anti-dumping and countervailing investigations on drill pipes.

It is noteworthy that both the Chinese and US governments pledge to their people that employment is the highest priority target. Obama promises that the long-term US unemployment rate will be reduced to less than 5%, and he wants the double-digit rate to drop to single-digit in a short time, while Chinese Premier Wen Jiabao has stressed that China will emphasize job-creation GDP growth. Employment rate pressures in both countries will be combustion points in trade relations between China and the US in 2010.