from Breakingviews:
China’s trade deficit is sign of things to come
By Wei Gu and Edward Hadas The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
China will have to get used to monthly trade deficits. Special factors contributed to the $4.2 billion negative number for the first two months of 2012, but something fundamental is changing. A smaller portion of China’s imports are of goods which will be processed for export, and a higher portion is going straight into domestic consumption.
A 13 percent volume increase in soybean imports may be partly due to precautionary purchase after drought losses in South America. And the 50 percent year-on-year increase in copper imports is suspicious. Copper can be used a wheeze to circumvent tight monetary policy. Importers get a letter of credit for commodity imports, sell the commodity quickly and keep the credit until maturity.
But some of the shift is durable. The increased wealth of Chinese households leads to more imports for consumption. Agricultural imports by value quintupled between 2000 and 2010. Automobile imports jumped 33 percent to 184,000 vehicles during the first months of 2012, year on year.
That development makes a big change in the Chinese economic model. Up to now, China’s huge trade machine – about 40 percent of GDP, three times the U.S. or European ratios – has been overwhelmingly dedicated to processing: import something, add a little bit value through cheap labour, export. But as China gets richer, labour gets more expensive and the country becomes more self-sufficient. A higher proportion of trade will come from sectors where China is either especially weak or strong.
There are signs of that transition. Exports of labour-intensive clothing and shoes fell by more than 2 percent, year-on-year. Higher-end exports are faring better, but the 8.8 percent year-on-year growth rate in of electronics and machinery still marks a deceleration from the 11.5 percent growth seen in the last three months of 2011.
It’s fairly easy to keep trade in surplus when almost all exports are basically imports-plus-labour. But as the import economy takes on its own momentum and becomes more separated from the export trade, occasional monthly deficit will be harder to avoid. The trade deficit is sign of things to come.
Revving down
It used to be the low-end stuff like shoes, clothes and furniture that displaced American manufacturing, then cars and consumer electronics. A new report by Alan Tonelson, a researcher at the U.S. Business and Industry Council which represents 1,500 American companies, now shows that high-end U.S. industry is facing ever tougher foreign competition in its own backyard.
Tonelson has crunched the numbers since 1997 on high-value, advanced manufacturing – the crown jewel of American industry that is capital intensive and depends on technological superiority such as turbines, pharmaceuticals and electrical engineering. He finds that imported products had captured 38 percent of the $1.63 trillion U.S. market for advanced manufactured products by 2010, up from 24.5 percent when the government started collected the data in 1997. Only six U.S.-based advanced manufacturers have gained market share in the United States in the 13-year period. Sectors that are more than 50 percent dominated by foreign producers have risen from eight in 1997 to 32 by 2010, he said.
The high-value core of America’s domestic manufacturing sector is suffering chronic and significant weaknesses. They strongly indicate that advanced U.S.-based manufacturing industries as a whole are failing a basic test of competitiveness – thriving in a market that is not only the world’s largest single market for such goods, but the market that they should know far better than their overseas counterparts.
Industries that have lost their U.S.-market dominance include metal-cutting machine tools, broadcast and wireless communication equipment, mining equipment, heavy-duty trucks and chassis, turbines and turbines generator sets – to name a few. None of the data are consistent with a smartly recovering, healthy domestic manufacturing sector, he said.
Interestingly, it has occurred even though the U.S. dollar on a trade weighted basis has declined in value by 10 percent over that time, making imports more expensive. His report throws a different light on 2010 as a banner trade year for the United States when exports increased by $85.6 billion, and on U.S. manufacturers adding jobs last year at the fastest pace since 1997. It’s the kind of data that has trade and industry groups in Washington talking of the U.S. needing an industrial policy. Remember Rolls Royce and Great Britain’s manufacturing slide?
Tonelson reviewed 108 industry sectors in 2010 against 114 in his 1997-2004 study. The differences were due to some changes in government data collection, U.S.-import tariffs, on iron and steel, tires and the degree of detail available. Although some significant sectors were excluded as a result, Tonelson said it reflects general trends on import penetration to the U.S. market.
from Davos Notebook:
Groundhog Day in Davos
The programme may strike a different note -- this year's Davos is apparently all about Shared Norms for the New Reality -- but much of the discussion at the 41st World Economic Forum annual meeting in Davos this month will have a distinctly familiar ring to it.
Last January, the five-day talkfest in the Swiss Alps was dominated by Greece's near-death experience at the hands of the bond market and recriminations over the role of bankers in the financial crisis, as well as worries about China's rapid economic ascent and a lot of calls for a new trade deal.
Fast forward 12 months and not much has changed.
Ireland has joined Greece in the euro zone's intensive care unit and Portugal and Spain are getting round-the-clock monitoring. The annual round of bankers' bonuses is once again stirring up trouble. China looms larger than ever on the global stage, after overtaking Japan in 2010 to become the world's second-biggest economy. And trade ministers who signally failed to make headway last year say they really must get down to business when they meet on the sidelines of Davos this time round.
For a sense of the deja vu, take a look at the WEF's latest hot-off-the-press report on Global Risks -- a 50-page tome on the spider's web of interconnected threats now facing the world. Not much progress in addressing them has been made, it seems. Government debt and the danger of sovereign default remains top of the risk hit-list, alongside macroeconomic imbalances, the fragility of the economic recovery and resource limits. It is a very similar litany as a year ago.
Worryingly, while the threats remain all too visible, the report's authors conclude that the world is now uniquely vulnerable to any further shocks in the wake of the financial crisis.
from Summit Notebook:
Does Germany need Europe?
Jim O'Neill, the new Goldman Sachs Asset Management chairman who is famous for coining the term BRICs for the world's new emerging economic giants, reckons he knows why Germany might not be rushing to bail out all the euro zone debt that is under pressure. Europe is not as important to Berlin as it was.
Speaking at the Reuters 2011 Investment Outlook Summit being held in London and New York, O'Neill pointed out that in the not very distant future Germany will have more trade with China than it does with France.
"It's a different global environment. That's why maybe Germany (ties) itself to a rules-based game with the rest of Europe because economically it doesn't mean so much to them now. What goes on in China is more important than what goes on in France and that's puts a different economic (spin) on the situation for the Germans."
O' Neill also drew parallels between the current situation which sees Germany being asked to stump up for ill-disciplined southern euro zone economies and the problems faced in 1990 when West Germany had to do something similar for East Germany.
"Fast forward 20 years and this time (they are saying) it's not even our own people. I think the Germans will stay pro-European , but it's a different set of circumstances."
The idea that Germany and others will eventually sort out the euro zone debt problem because of a desire for political unity underlies much of the long-term expectations for euro zone survival. But it is a new world, in many ways.
Building BRICs in Africa
Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries — Brazil, Russia, India and China — on Africa.
First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:
– By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.
– BRICs share of Africa’s total trade will increase from one-fifth today to one-third in the next five years.
– BRICS foreign direct investment stock in Africa will swell to more than $150 billion from around $60 billion today.
Standard Bank bases these assertions partly on estimates for BRICs growth over the next five years — eg, domestic output, global output and a doubling of BRICs trade with the world in general. But it also sees Africa growing rapidly — for example, a per capita real annual growth rate of 5.7 percent between now and 2015, and a doubling of private consumption in Africa’s 10 largest economies. And it adds:
Crucially, a host of global-minded corporates is emerging from the BRICs. In 2010 231 (11.5 percent of the total) companies listed in the Forbes Global 2000 originated in the BRICs, up from only 83 companies (4 percent) in 2005. Recent trends are a harbinger of deeper potential.
APEC’s robots stealing the show
A guide at the “Japanese Experience” exhibition talks to Miim, the Karaoke pal robot, on the sidelines of the APEC meetings in Yokohama, Japan on Nov. 10. REUTERS/Yuriko Nakao
Miim is one of the more popular delegates at the APEC meetings in Yokohama Japan. She sings. She dances. She tosses her shoulder length hair. She may not be able to spout an alphabet soup of APEC acronyms like the other Asia-Pacific delegates. But she’s still pretty lively. For a robot.
This week’s meetings of the Asia-Pacific Economic Cooperation forum have been earnest and most comprehensive . Foreign and trade ministers issued a 20-page statement about all the things they talked about — a giant free trade zone, protectionism, the Doha round, easing restrictions on businesses, simplifying customs procedures, promoting green industries, cooperating on health and security, you name it. They also have been, and pardon my French here, excruciatingly dull. So far, the meetings and their stupefying statements have been a testimonial to Japan’s skill at stating the ambiguous. Call it the opaque meetings. Journalists from around the Pacific rim have been desperately trying to find news as the 21 APEC leaders gather for their annual pow-wow this weekend.
The annual “silly shirts” photo shoot, in which leaders don native attire for the class picture of their summit is usually good news fodder, but is going to be a big let-down this year. The leaders are merely being asked to show up wearing “smart casual” for the photo shoot on Saturday night, before they head inside for a Kabuki show.
Which brings us back to Miim, the karaoke robot. She, er it, is one of 130 exhibits on display at “Japan Experience”, a government-sponsored exhibition in the Pacific Yokohama convention center where the APEC meetings are taking place. The exhibit also features “personal mobility vehicles”, a cyborg suit named HAL that enables the wearer to lift really heavy stuff and perform heroically in disaster relief, a talking delivery robot, cute robotic seal pets for use in pediatric therapy, and much other cool stuff .
“Welcome to APEC Japan 2010,” the anatomically correct Miim says. ”This exhibition shows Japan’s strengths and attractions. Please see, feel and touch advanced technology and initiatives of Japan.”
APEC’S always in fashion
One of the most closely guarded secrets at the APEC summit in Japan’s port city of Yokohama this weekend is not what the Asia-Pacific leaders might say about currencies and global imbalances. No, that’s all going to be thrashed out at the G20 meeting Thursday and Friday in Seoul. The big topic of speculation here at the Pacifico Yokohama Convention Center is what the leaders will wear when they gather for the annual class photo that concludes the meetings.
U.S. President George W. Bush (L) and his Russian counterpart Vladimir Putin wear Chilean ponchos at APEC meeting in Santiago in 2004. REUTERS
The last time Japan hosted the Asia-Pacific Economic Cooperation summit was 1995 in Osaka. There the leaders, apparently trying to depict the Japan Salaryman look, came out in business suits. Nobody remembers much about that APEC meeting, except that it took place in the magnificent, gold-embellished Osaka Castle.
In fact, APEC summits are rarely memorable for much beyond the fashion show and the intriguing historical settings in which they are often staged. The 1994 summit in Bogor, Indonesia is enshrined in the annals of APEC for the “Bogor Goals” that were agreed there. Leaders committed to achieving “free and open trade and investment” by 2010 for developed economies and 2020 for developing ones, giving the group its blueprint for the future. The 21 summiteers in Yokohama are expected to declare that the five industrialised members have passed their Bogor tests. Another eight in the developing wing have asked to be assessed as well, proud of their record in cutting tariffs and red tape.
I covered the 1994 summit, when Bill Clinton famously kept Indonesian President Suharto waiting and pacing on the portico of the 18th-century Bogor Palace. Everyone was watching Bill work the crowds, while Suharto ostentatiously looked at his watch, peacocks screeching in the bushes. I’ve covered nearly half of the annual summits since they began in Seattle in 1993 when Clinton began the fashion show tradition by outfitting the leaders in black leather bombardier jackets. That was kind of a cool look for everybody.
Former U.S. President Bill Clinton (3rd from left) joins Indonesian President Suharto (to Clinton’s right) in waving to the media at the 1994 summit in Bogor, Indonesia. REUTERS
Since then they’ve been decked out in native attire ranging from the sublime to the ridiculous. Previous meetings have seen the leaders don Chilean ponchos, Chinese silk jackets, batik shirts, Korean Hanboks, Vietnamese silk tunics, Mexican sombreros, New Zealand sailing jackets, and Australian Drizabone raincoats. The funniest photo has to be the one from the Santiago summit in 2004 when they all trundled out in Chilean ponchos that made them look they were auditioning for a part in Joseph and the Amazing Technicolor Dreamcoat. Vladimir Putin looked like he had been stuffed inside a box made of raccoon skins in his chamanto.
A grand bargain to solve global imbalances
Michael Pettis, a professor and China expert at the Carnegie Endowment for International Peace, has put together a thorough and informative look at all things U.S.-China trade. It’s well worth reading and watching the entire thing, but here’s a few highlights that jump out:
* We’re likely to see a significant increase in global trade tensions
* China will probably allow the renminbi currency to rise, but not by a lot
* There is a way to resolve those huge global imbalances but it will be painful and the chances of mustering the political will — in China, the United States and Europe — look slim.
A bit more on that last point: Pettis thinks that those three players need to “come to some kind of grand agreement.”
“China needs to recognize that the trade surpluses it needs to absorb its excess capacity are politically unacceptable in countries suffering from high unemployment.
“Europe and the United States need to understand that China simply can’t adjust quickly enough. In an ideal world, the leadership of the three economies would get together and work out a plan—six years, eight years, however long it took—in which China committed to taking the necessary steps.
More propaganda. The USA and the Eurozone will suffer a financial apocalypse and default on their skyrocketing national debt. Then the west will embargo China, because they will have no choice.
China is smart, but not so smart. The path of the world economy is not going to be linear. We here in the west have been covering up tax shortfalls with borrowing, tax shortfalls which have resulted from our rapidly shrinking *productive* economies. Once we can no longer borrow, we will face a truly grim future. And everyone will know that china is to blame.
from Africa News blog:
Will EAC’s common market deal work?
For telecoms-tycoon-turned-philanthropist Mo Ibrahim, it's one step forward, two steps back. For Benno Ndullu, governor of the central Bank of Tanzania, the whole thing is bound to stall unless problems are ironed out first.
For many Tanzanians, it's a threat to their jobs, language and prospects.
But for the leaders of the five-member East African Community (EAC), signing the common market protocol on Friday represents the future fortunes of Burundi, Kenya, Rwanda, Tanzania and Uganda combined.
Signing the document -- the culmination of a relatively speedy 18 months of negotiation -- will mean goods, services and the community's 126 million people can move freely across their borders, in theory at least.
Together, the five countries muster $60 billion in gross domestic product combined, and believe they can prosper better as one unit than apart.
Already they have a customs union, but by 2012 they foresee sharing a single currency and finally political federation.
This is exactly the type of thing necessary for long term growth, leading to transparency, then true democracy. This alliance would have lost any chance of success if GlobalWarming Zealots ever succeed.
Instant View Video: Rebalancing global trade
Reuters correspondent Sumeet Desai talks about the G20 draft communique and what it means for rebalancing the world’s economy.
