Will Obama "tyre" of China or the mob?

Terrible title I know and after such a long posting layoff as well. I must be rusty.

This is a good FT article from Chad Bown looking at US-China trade relations. They are already under strain - this is adding to the pressure.

I am surprised that the FT use the term "mobs". Chad has it spot on though and has read the situation well in my opinion.

China need to take this threat seriously and it might be wise for them to seek a solution so as to to set rolling a ball that may well prove difficult to stop.

Obama must resist the anti-trade mobs [FT]

The Obama administration’s first real test on trade policy has arrived. The US must decide whether to impose new import restrictions on Chinese tyres under what is known as its “China safeguard” law.

This decision is not just a test of President Barack Obama’s support for free trade. History could well record it as the defining moment when the multilateral trading system was able – or not – to withstand the crisis-provoked protectionist forces that currently threaten to bring it down.

The World Bank-sponsored Global Antidumping Database suggests that, since the economic turmoil began, countries have been ganging up to use World Trade Organisation rules in an almost mob-like response to restrict imports from China. The tyres case could make this far, far worse.

The US tyres case began in April when the United Steelworkers union asked the government to investigate tyre imports from China. By June, the US International Trade Commission recommended the president impose a new 55 per cent tariff. President Obama has the discretion under the law to accept this, offer a different package of assistance to the steelworkers or dismiss the case.

There are numerous comparisons between the tyres decision and the first trade policy test President George W. Bush faced over a steel safeguard case in 2001-2002. Each test occurred under safeguard laws subject to presidential discretion, took place early in each president’s first terms, and could lead to import barriers which would benefit a key domestic constituency.

However, for any US administration with multilateralist aspirations, an important historical element is what happened after the Bush administration imposed import restrictions. The 2002 US trade barriers ignited a protectionist fire that quickly spread across the world. Nine other economies, including the European Union and China, followed the US lead by imposing new steel import restrictions. Some governments feared that the steel exports newly shut out of the US market would be deflected into their own markets.

It is doubtful that today’s struggling world economy, still reeling from the financial crisis, could withstand a similar global protectionist backlash. Unfortunately there are three reasons to expect an even stronger international protectionist response if Mr Obama accepts new tariffs.

First, this China safeguard is just one of many anti-China trade policies currently in vogue. Industry demands for new import restrictions against China under this and other policies such as anti-dumping were up 23 per cent in 2008, and are on pace for another increase in 2009. It is not limited to the US and EU; India, Brazil, Argentina, Indonesia, South Africa and Turkey are imposing most of the new import restrictions China faces.

Second, a little-known loophole in the rules governing China’s 2001 WTO accession makes it easy for a global protectionist response to spread faster and further than that which took hold in 2002. Nowadays, once any one country imposes a China safeguard on imports, all other WTO members can immediately follow suit, without investigating whether their own industries have been injured.

Third, much of the world still follows the US lead regarding new import restrictions. The most recent example was the Bush administration’s reversal of a long-standing US policy that made a particular anti-subsidy law off-limits for use against China. After the US charged China under this law, Australia and India initiated their first such cases against China, and others will follow.

Neither China’s exports nor its policies are blameless in these affairs. Some of the US and other WTO member countries’ concerns are based on legitimate problems. It is simply that the mob mentality on new trade barriers does not help the trading system address such problems.

The best option for the US administration in the imminent China-safeguard decision over tyres is to decline to implement new trade barriers, but to offer the adversely affected communities in the US help through adjustment assistance programmes. Doing so will help the US stand up for the trading system and counter the crisis-driven mob mentality that threatens to bring it down.

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Where Chinaeconomicsblog leads the FT is sure to follow

Of course the fact that the FT is covering the "GDP numbers riddle" has nothing to do with Chinaeconomicsblog's coverage but it is good to see the FT picking it up nonetheless.

China’s growth figures fail to add up [FT]

All but seven of the regions reported GDP growth rates above the bureau’s first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China’s growth target for the year.

Hmmmm.

However, this is the first time I have seen poetry as the first line of defence.

The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.

The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.”

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"Chinese riddles" - Chinese numbers questioned yet again

This time Radio Free Asia take a sceptical view of China's recent GDP numbers.

This scepticism is more than justified. Does the old adage from school "you are only cheating yourself" apply to the most populated country on earth?

Let us imagine that the numbers are wrong. What harm can it do? It might artificially inflate confidence that may in turn cause a virtuous circle of growth and prosperity? Can it be that easy or is it simply storing up a whole lot of trouble for later?

I have posted this article in full as it makes for important reading. This is an issue I have posted about on this blog on numerous occasions.

The "oil use" issue is important as these numbers are harder to fake. Can oil use fall and output rise by so much? previous correlations suggest not.

Can 100,000 statisticans be wrong? This number of statisticans might even help the UK get its numbers right.

China's Numbers Questioned [Radio Free Asia]

BOSTON—China’s economic growth has won praise in the midst of worldwide recession, but controversy continues to swirl around the accuracy of the government’s claims.

In the run-up to last week’s meetings of the U.S.-China Strategic and Economic Dialogue in Washington, China’s National Bureau of Statistics (NBS) released data showing a strong recovery in the second quarter.

“China is leading the world economic recovery based on fresh data from the first half of the year,” the official Xinhua news agency said, citing an interview with C. Fred Bergsten, director of the Petersen Institute for International Economics in Washington.

According to NBS data, China’s GDP expanded by a robust 7.9 percent in the second quarter from a year earlier, boosting growth to 7.1 percent in the first half of 2009.

But the figures have raised doubts on several counts, most notably because the NBS also reported that China’s first-half exports plunged 21.8 percent.

In an economy driven by exports for the last decade, such a steep decline might have been expected to come as a blow to GDP.

Economists have also questioned NBS reports that industrial output rose 7 percent in the first half, while power generation dropped 1.7 percent.

Oil figures

The government doesn’t report oil demand, but Platts Commodity News estimates that it fell less than 1 percent during the period, while Chinese customs data show crude imports up less than 1 percent.

In May, the Paris-based International Energy Agency noted the lag in oil use and challenged the GDP growth data for the first quarter, calling it “another Chinese riddle.”

The NBS dismissed that criticism as “groundless” in a comment on its Web site.

The latest GDP figures have also been met with deep skepticism from some economists, prompting the NBS to take on its critics in similarly strong terms.

In a Web posting on July 16, Derek Scissors, an economist and research fellow at the conservative Heritage Foundation in Washington, blasted the accuracy of the NBS reports.

“It is reasonable to simply dismiss Chinese economic results,” Scissors wrote.

“Despite starkly limited resources and a dynamic, complex economy, the State Statistical Bureau again needed only 15 days to survey the economic progress of 1.3 billion people.”

“Revisions are a farce: No growth figure has ever been revised down, and announcements of upward revisions are incomplete to the point of uselessness,” he said.

“At best, earlier activity is measured. At worst, results are manufactured to suit the Communist Party.”

Thousands of statisticians

The NBS responded in a lengthy interview with an unnamed official on the English-language China Daily Web site, disputing some of Scissors’ conclusions as “wrong.”

The NBS employs “more than 100,000 statisticians” to compile reports quickly, the official said, adding that “we did not see any sense or kindness in Mr. Scissors’ article.”

In an interview, Scissors said that China’s economy clearly strengthened somewhat in the second quarter, but he argued that the NBS growth data is “internally inconsistent” and “can’t be accurate.”

Scissors rejects NBS arguments that China’s gains in energy efficiency can account for such strong GDP growth when power use has declined.

“The spread between the drop in power consumption and the size of production and GDP growth is too big,” he said.

Other explanations of the data have proved difficult, because the NBS has also reported an 8.7 percent rise in coal production, despite the dip in power generated from coal.

The contradictions may reflect adjustments to inaccurate reporting in the past, Scissors said.

“Their data going back 10 or 15 years is flawed, so you can’t really trust what they’re saying at any particular time because they’re building on a bad base,” he said, citing a similar conflict between falling exports and rising GDP.

“Something doesn’t fit here. What exactly it is, it’s hard to determine.”

Energy experts told RFA they hadn't seen previous cases of such strong economic growth without corresponding power demand.

“It would be very unusual to have rather substantial growth in GDP coupled with a substantial decline in electric power consumption,” said Robert Ebel, senior adviser to the energy and national security program at the Center for Strategic and International Studies in Washington.

“They’re trusting people not to raise questions.”

Large disparities

Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research, said that such large disparities cannot be explained by exaggerated energy efficiency gains.

“These kinds of improvements in efficiency in a matter of six or 12 months—that’s just not consistent with energy- intensive industries and the slow turnover of capital stock,” said Herberg, who believes the reporting has grown more unreliable with changes in China’s economy.

“The quality of the information becomes very poor when things are very fluid and changing very quickly,” he said.

The analysts all urge caution in relying on NBS statistics in deciding U.S. policy issues, such as negotiating a new climate change treaty or forecasting an end to the global recession.

“I would hope that our embassy in Beijing is doing what they can to provide people in the government with what they believe is the correct assessment of what’s going on,” Ebel said.

Scissors also responded to the NBS charge that his criticisms were not offered in the spirit of “kindness.”

“Economists all over the world love transparency. It’s what we call truth,” he said, adding that his concern is for better economic policy.

“I want China’s economy to thrive and benefit the world economy, so in that sense, there’s plenty of kindness.”

“There’s not a lot of kindness directed toward the National Bureau of Statistics because I’m very frustrated with them and, of course, so are many other people who follow Chinese data,” Scissors said.

New law

Although the NBS has objected to criticism, the government recently enacted a revised statistics law to toughen penalties for falsifying data.

On July 23, Xinhua also reported that China would take part in a U.S. $4 million (27.3 million yuan) U.N. program to help Asian countries improve statistical reporting.

In Washington, the Strategic and Economic Dialogue meetings concluded July 28 with accords for cooperation on environmental and economic issues but without major breakthroughs in either area.

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Where I will not be going to cure my blogging addiction

The Guangxi Qihuang Survival Training Camp sounds like a pretty scary place. There must be an easier way to ween myself off the internet.

Electoshock treatment also sounds a rather drastic method for getting teenagers to stop surfing the net.

The economics link here is the number of internet users in China. The great Chinese firewall is ultimately doomed to fail. China will be a very different place in 10 or 20 years mark my words.

Net addict son 'beaten to death' at camp [SMH]

A teenager was reportedly beaten to death by trainers at a rehabilitation camp in China where his parents had sent him to cure his internet addiction.

The three supervisors who allegedly beat Deng Senshan, 16, were arrested after the boy's death early on Sunday, his father Deng Fei told the Global Times.

"We are investigating a case where a high school student was beaten to death by his camp supervisors. The case is still under investigation," a police officer in Nanning, Guangxi region, was quoted as saying.

Deng Fei said he paid 7000 yuan ($A1190) to give his son a month's training at the Guangxi Qihuang Survival Training Camp to rid him of his addiction to the internet.

But instead, he said, the boy was put in solitary confinement shortly after his arrival and then beaten to death by his trainers who scolded him for running too slowly.

"My son was very healthy and was not a criminal. He just had an internet addiction when I left him at the camp," Deng Fei told the paper.

"We can't believe our only son was beaten to death."

China has the world's largest number of internet users with 338 million -- more than the entire population of the United States.

More than 10 million of the country's 100 million teenage web surfers are internet addicts, the China Daily said, citing a survey by the China Youth internet Association last year.

There is controversy over the treatments for internet addiction and how it is diagnosed. The health ministry last month banned the use of electroshock therapy to treat internet addiction, the China Daily said.

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Is china pumping up another asset bubble?

In fact you could argue that the property bubble in China never really went away but it is inflating again and this spells danger.

Andy Xie at China Digital Times rants. This is a rant and is a rather simple analysis of a complex picture but there is an element of truth in his words. It may take a lot longer that the 4th quarter of 2009 to deflate however.

Andy Xie: “Crazy Again” [China Digital Times] H/T TDWatkins

Chinese stock and property markets have bubbled up again. It was fueled by bank lending and inflation fear. I think that Chinese stocks and properties are 50-100% overvalued. The odds are that both will adjust in the fourth quarter. However, both might flare up again sometime next year. Fluctuating within a long bubble could be the dominant trend for the foreseeable future. The bursting will happen when the US dollar becomes strong again. The catalyst could be serious inflation that forces the Fed to raise interest rate.

Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast.

[...] In summary, the market frenzy now won’t last long. The correction may happen in the fourth quarter. There could be another wave of frenzy next year as China can still release more liquidity. When the dollar recovers, possibly in 2012, China’s property and stock market could experience collapses like during the Asian Financial Crisis.

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Is China being screwed by the EU?

I for one did not realise that the EU tariffs on screws was so high. Why?

The FT report (plus this story makes for a good blog title).

Anti-dumping legislation is always interesting (at least to me) and the EU are getting more and more trigger happy when it comes to using anti-dumping as a means of protection. Dumping is always hard to prove.

It will be interesting to see how this plays out.

China in EU trade spat over screw imports [FT]

China has sparked a row with the European Union after complaining to the world’s trade watchdog that EU anti-dumping duties on Chinese screws and bolts are breaking global commerce rules.

The world’s second-largest exporter lodged its first complaint against the EU with the World Trade Organisation on Friday, protesting that EU tariffs of up to 85 per cent were “neither impartial nor transparent” and were damaging business for hundreds of Chinese companies.

The move signals Beijing’s willingness to defend its trade-related interests more aggressively through multilateral institutions, as well as its implicit acceptance of the authority of those western-dominated institutions.

The European Commission said the duties, imposed in January on goods worth some €575m ($812m) a year, complied with WTO rules and served to protect European businesses from unfairly priced Chinese goods.

Under WTO rules, a country imposing anti-dumping duties must prove its domestic industry has been injured by cheap imports from a specific country.

The dispute comes only days after EU trade officials approved pre-emptive penalties on imports of steel pipe from China, viewed by some as a protectionist move intended to mitigate the effects of the economic downturn within the 27-state bloc.

In a statement from its WTO mission in Geneva, China said the commission had failed to comply with the trade watchdog’s rules when it investigated the imports and imposed the measures.

“The determinations made are neither impartial nor transparent, which infringes the legitimate commercial interests of over 1,700 Chinese fastener producers,” it said.

It said the EU had been inconsistent in its application of the rules given that two Chinese subsidiaries of European firms – Italy’s Agrati and Celo of Spain – were exempt from the duties.

However, the European Commission said the measure was fully in line with WTO rules. “Anti-dumping measures are not about protectionism, they are about fighting unfair trade.

“The decision to impose measures was taken on the basis of clear evidence that unfair dumping of Chinese products has taken place with state distortion of raw material prices,” Lutz Guellner, trade spokesman, said.

Between last September and June, other WTO members, particularly the US, India and European countries, brought 77 cases worth a total of $9.8bn against China, more than double the number of cases in the same period a year earlier, Chinese state media reported.

Until recently, China has been reluctant to use the WTO to defend its interests. However, it has now decided to engage more directly to ­protect its businesses, according to reported comments from Zhou Xiaoyan, deputy director of the China Bureau of Fair Trade for Imports and Exports.

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