China must brace for impact of possible EU-US free trade agreement

The US is pushing FTAs in various directions, aiming at removing all barriers, including seeking congressional approval of FTAs with Columbia, Panama and South Korea, promotion of the Trans-Pacific Partnership in Asia, “modernization” of North American Free Trade Agreement (NAFTA), and now launching of the US-EU FTA negotiations. Compared with the US, the EU, entangled in a serious debt crisis and economic recession, shares the same goal, although at a slightly slower pace.

The EU, for its part, has rich experience in regional market and economic integration. As a result, there is nothing strange in the two cooperating against external pressures. The FTA negotiations that are being ambitiously promoted by the US and EU will inevitably promote global trade liberalization. This will bring a new driving force for China to enter further into globalization as well as more challenges.

There has already been close cooperation between the US and the EU, and the lowering of trade and investment barriers will tend to increase merchandise and capital flows between the two, which will bring side effects to external players such as China. In addition, both the US and EU have been seeking to build new trade rules through regional trade arrangements. Although China has entered into the inner circle of world trade, it has limited power in setting rules, and the new conditions related to environment, labor and so on will pose further challenges.

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Rebound intact as Chinese trade surges

China’s economic rebound was evident as the first hard economic numbers of the year, released on Friday, showed a surge in exports and imports that was not solely explained by the timing of the Lunar New Year holiday. Exports grew 25 per cent year-on-year in January versus a forecast of 17 per cent in a Reuters poll, while imports surged 28.8 per cent to comfortably beat a consensus call of 23.3 per cent. January’s trade surplus was $US29.2 billion versus a market expectation of $US22 billion.

“I think the Chinese New Year effect only explains part of the story,” Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said. “After controlling for the Chinese New Year, the numbers are still very strong and shows the economic recovery is on track.” Global markets have been buoyed in part by expectations of a surge in China’s export growth and an easing of inflation to 2.0 per cent from December’s seven-month high of 2.5 per cent when January data are published.

China publishes the bulk of its economic data for January and February combined in March to smooth the effects of the annual shift in the Lunar New Year holidays when many factories shut for at least a week and often longer. The holiday fell in January in 2012 and will be in February this year. Meanwhile the easing of inflation forecast for January is not expected to persist, with a rebound seen building alongside the broader economic bounce – albeit not one that is likely to be strong enough to breach 3.5 per cent, a level that economists think the government will soon announce as its 2013 target.

China’s explosive growth has altered global trading

China has a new status its government doesn’t want – world’s biggest trader.

For 2012, Beijing reported a $231 billion global trade surplus on exports of $2.049 trillion and imports of $1.818 trillion. The United States reported $1.547 trillion in exports and $2.335 trillion in imports, for a deficit of $788 billion. The Commerce Ministry’s statement last week said a WTO global trade report due out this month or in early March would recalculate those figures and should show China still No. 2. Also, some commentators have questioned whether China’s trade data can be trusted because many companies are believed to misreport imports and exports to avoid taxes or get trade-related payments.

“Of course, it is only a matter of time before China becomes No. 1,” said Ren. Behind the headline numbers, China and the United States are drastically different traders.China is the world’s low-cost factory, assembling most of its mobile phones, home appliances and other goods. But its factories need imported technology and components. Much of the value of its exports flows to U.S. and European technology suppliers and to producers of components in Japan, Taiwan, South Korea and Southeast Asia. That has meant surpluses Asian countries used to run with the United States were shifted to China’s column in U.S. national accounts. By contrast, the United States uses its own technology and adds more value to goods such as jetliners and factory machinery. So it keeps a bigger share of the value of its exports.

American workers also are far more productive. A trade group, the National Association of Manufacturers, says U.S. factories produce goods worth more than China’s manufacturing output with about one-tenth as many workers.Over the past decade, China passed the United States as the biggest market for autos and mobile phones and became the biggest producer of steel and ships. It overtook Japan in 2009 as the second-largest economy. China also racked up firsts in more contentious areas as the biggest energy consumer and producer of climate-changing greenhouse gases. Beijing initially denied both changes, possibly out of concern they would add pressure for environment controls it feared might hamper economic growth.As a developing country, China was exempt from emissions limits under the Kyoto Protocol aimed at curbing climate change. Some Western companies complained that gave its manufacturers an unfair price advantage.

The huge volume of China’s imports makes it a driver of growth for suppliers of goods from iron ore to computer chips, which is starting to translate into political influence.Even with growth slower than its double-digit rates of the past decade, China’s share of world output and trade is expected to keep rising. Annual growth is forecast at up to 8 percent over the next decade, far above U.S. and European levels. Chinese leaders are trying to nurture more self-sustaining economic growth based on domestic consumption instead of exports. That might slow demand growth for some raw materials, but China’s appetite for other imports could pick up as consumer spending rises.

China’s roaring trade is hard to beat

China has become the world’s biggest trading nation in goods, ending the post-war dominance of the United States, according to official figures.

China’s customs administration said the combined total for imports and exports in Chinese goods reached $3.87-trillion in 2012, edging past the $3.82-trillion trade in goods registered by the US commerce department.

The landmark total for Chinese trade indicates the extent of Beijing’s dependence on the rest of the world to generate jobs and income compared with a US economy that remains twice the size and more self-contained ($15-trillion compared with the $7.3-trillion Chinese economy).

The US not only has a large internal market for goods, but also dominates the trade in services. US total trade amounted to $4.93-trillion in 2012, according to the US Bureau of Economic Analysis, and has a surplus of $195.3-billion.

But like most Western nations, the US deficit in the trade of goods weighs heavily and is only expected to get larger. The deficit in goods was more than $700-billion compared with China’s 2012 trade surplus, measured in goods, which totalled $231.1-billion.

Jim O’Neill, head of asset management at Goldman Sachs, said the huge market for Western goods would disrupt regional trading blocs as China becomes the most important commercial partner for some countries. “For so many countries around the world, China is rapidly becoming the most important bilateral trade partner,” he said. “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.”

Indonesia suffers first-ever trade deficit

Indonesia suffered its first ever annual trade deficit in 2012 as shipments to most of the country’s major trading partners fell during the year amid the slowdown in the global economy. According to the latest data issued by the Central Statistics Agency (BPS) on Friday, the country’s trade deficit reached US$1.65 billion last year, the first such deficit in Indonesia’s history.

Exports dropped to US$190.04 billion, down 6.61 percent from a year earlier, deeper than the forecasts by most economists, who had expected to see a decline ranging between 5 percent and 6.5 percent. Exports to almost all major trading partners declined. Exports of non-oil and gas products to China and Japan, for example, dropped by 3.39 percent and 6.4 percent to US$20.86 billion and US$17.23 billion respectively.

Imports, on the other hand, surged by 8.2 percent to US$191.67 billion, driven by imports of intermediary goods for local production (73.10 percent), followed by capital goods (19.90 percent) and consumer goods (7 percent). Deputy Trade Minister Bayu Krisnamurthi said after the announcement that the unfavorable external situation in the global economy severely affected Indonesia’s exports.

“We will maintain the target for exports at a similar level to last year, which we consider realistic. However, hopefully, ongoing developments in China and Japan will improve the outlook,” he told a press briefing in Jakarta. Earlier, Trade Minister Gita Wirjawan said that Indonesia’s exports could remain stagnant this year as major trading partners such as the United States and Japan and European countries might keep cutting demand.

Analysts also believe that export prospects will remain gloomy this year although there are signs of recovery in the country’s leading trading partners, such as China and the U.S. However, they estimate exports will increase only slightly and the rise may be still too small to bring the country’s trade balance back into positive territory. Latif Adam, an economist at the Indonesian Institute of Sciences (LIPI), said that Indonesia’s exports would expand, albeit at a lower rate, thanks to economic recovery in Indonesia’s major trading partners

In its latest forecast, the International Monetary Fund (IMF) predicts the global economy will grow by 3.5 percent in 2013 with fewer risks of policy mistakes and lower levels of financial stress. “This will slightly push up demand for our commodities. In addition to this, we project that the government’s move to extend exports to non-traditional markets will begin to generate outcome,” Latif said. He estimated exports would increase by 9.22 percent this year, but the trade deficit would continue as imports would leap by 9.24 percent during the year. Latif predicted that the trade balance would remain in the red.