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China's trade surplus shrinks on weakened global demand

China's trade surplus narrowed in September
For the second consecutive month, China's trade surplus narrowed in September on slower growth in imports and exports, reflecting a weakening global economy.

Trade data released Thursday showed Chinese exports rose 17.1% last month from a year ago, down from 24.5% growth in August. Meanwhile, imports grew 20.9% from a year ago, compared with 30.2% in August.

Demand for Chinese exports was hit especially hard in financially troubled Europe. Exports to the continent grew 9.8% in September from a year ago, compared with 22.3% in August.

Exports to the U.S. grew 11.6% year-on-year in September, tapering slighting from a 12.5% gain in August.

"China's export growth is feeling the chill from the intensifying crisis and weakening demand from the West," economists at HSBC said in a research note.

China’s trade surplus shrank to $14.5 billion in September, compared with $17.8 billion in August and $31.5 billion in July.

That could ease some of the international pressure on Beijing to quickly raise the value of its currency, known as the yuan and renminbi.

A U.S. bill that passed the Senate and is now before the House would slap import tariffs on countries such as China if they're found to have weakened their currency to create an unfair trade advantage. 

The yuan was set at an all-time high against the dollar on Tuesday before the Senate vote on the tariff bill, at 6.348. It has crawled down slightly Thursday to 6.373.

Brian Jackson, a senior strategist for the Royal Bank of Canada, said the focus on the yuan exchange rate against the dollar ignores China's loss of trade competitiveness with other countries besides the U.S.

"Although the yuan has stalled against the dollar since mid-August, it has appreciated considerably against the euro and other Asian currencies over this period, so in trade-weighted terms China's currency has strengthened significantly over the last two months," Jackson wrote in a note to clients.

He added: "So although Washington is ramping up the pressure on Beijing to move faster on the currency, Chinese officials will be able to cite today's data as evidence that exporters are already feeling the pinch from the recent appreciation of the yuan in trade-weighted terms."

Currency appreciation aside, Chinese exporters have been under intense inflationary pressure and worsening credit shortages. Hundreds of companies in coastal provinces are reportedly closing. 

Speaking to reporters after releasing the trade data, Vice Customs Minister Lu Peijun said several uncertainties threatened the stability of exports for the rest of the year, chiefly demand from the West and yuan fluctuations. 

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-- David Pierson
Twitter.com/dhpierson

Photo: Trucks are driven into a shipping container area at Qingdao port, Shandong province. Credit: Reuters

China lashes out against U.S. bill aimed at currency manipulators

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China on Tuesday blasted a proposed U.S. bill that would punish countries for undervaluing their currency by saying it would undermine the global economy and potentially lead to a trade war.

China’s central bank and ministries of commerce and foreign affairs released separate statements criticizing the bill, which is being championed by Democratic lawmakers who hope to protect U.S. jobs by slapping tariffs on Chinese imports.

Such a move “seriously violates rules of the World Trade Organization and obstructs China-U.S. trade ties,” said Foreign Ministry spokesman Ma Zhaoxu in a statement posted on the Chinese government’s official website.

China’s central bank said the attention given to China’s currency, known as the yuan or renmenbi, deflects Washington from the real issues plaguing the American economy.

“The yuan bill passed by the U.S. Senate will not solve its problems, such as insufficient savings, high trade deficit and high unemployment rate, but it may seriously affect the whole progress of China's reform of its yuan exchange rate regime and may also lead to a trade war, which we would not like to see,” the bank said on its website, according to a translation by Reuters.

The yuan’s value is set daily by China’s central bank, not by free markets. Critics of China’s currency policy contend the yuan is undervalued by as much as 40% to give the world’s second-largest economy an unfair trade advantage.

Labor advocacy groups in the U.S. such as the Economic Policy Institute say this has fueled a trade deficit with China that has cost Americans 2.8 million jobs between 2001 and 2010.

Debate still rages over whether targeting China’s currency will return jobs to the U.S., as manufacturing could shift to another low wage country such as Vietnam.

The yuan has edged up about 10% against the dollar since it was de-pegged from the greenback in June, 2010. Experts say the central bank is in favor of faster appreciation to combat inflation, which is running at a three-year high. A stronger yuan would make imports cheaper.

But the Ministry of Commerce, which oversees trade, and officials in coastal manufacturing provinces are against more aggressive appreciation for fear it will bankrupt factories, sap taxes and leave millions out of work.

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-- David Pierson  

twitter.com/dhpierson

Photo: China blasted a proposed U.S. law that would slap tariffs on countries that undervalued their currency. Above, a bank clerk counts notes. Credit: Zhong Min / EPA

China's central bank chief says policy to remain stable

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The head of China's central bank said the world's second-largest economy would continue to tackle inflation and resist major policy changes that could provoke a so-called hard landing.

"We will not introduce macroeconomic policies that will trigger a 'hard landing,'" said People's Bank of China Governor Zhou Xiaochuan in an interview published Monday in the China Business News. "Instead, we'll let the policies work for a period of time to make sure the economy 'soft lands,' and at the same time, maintain stable and sustainable growth."

Zhou added that policies would remain flexible given the uncertainty of the global economy, suggesting China will use currency appreciation as a tool to dull inflation.

The central bank set the yuan Monday at its highest level against the dollar since July 2005, at 6.3735.

Zhou's remarks decrease the chances that China will seek a new round of fiscal tightening in the coming months. But it also reinforces the belief that Beijing will steer clear of loosened monetary conditions anytime soon.

The latter may have spurred the sell-off of shares in China on Monday. The Shanghai Composite Index, which tracks the country's larger stock exchanges, fell 1.6% to 2,393.18 – its lowest point in more than 14 months.

After hitting a 37-month high in July, China's inflation rate eased slightly in August. Some economists believe that inflation has peaked in China, though the chances of it staying persistently high remain strong.

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-- David Pierson
Twitter.com/dhpierson

Photo: China's Central Bank Governor Zhou Xiaochuan meets with foreign finance ministers during the IMF/World Bank meetings in Washington on Sept. 22. Credit: Manuel Balce Ceneta / Associated Press

China rejects U.S. complaint against chicken tariffs

China tariffs on U.S, chicken
The steamed chicken feet just haven't been as unctuous since China slapped tariffs on U.S. poultry imports last year.

The price of American chicken, including the prized feet euphemistically called "phoenix talons" in China, shot up between 50% and 100%, which will cost the U.S. poultry industry an estimated $1 billion in sales by the end of this year.

With that in mind, the U.S. Trade Representative's office announced Tuesday that it had filed a complaint with the World Trade Organization saying China violated international trade rules when it imposed anti-dumping and countervailing duties on U.S. chicken.

"China seems to have failed to observe numerous transparency and due-process requirements, failed to properly explain the basis for its findings and conclusions, incorrectly calculated dumping margins, incorrectly calculated subsidy rates and made unsupported findings of injury to China's domestic industry," the trade office said.

In a response Wednesday, China's Ministry of Commerce released a brief statement rejecting the U.S. claim.

"China's anti-dumping measures follow the law and are in accordance with WTO rules," the statement said. "China will study requests from the U.S. carefully and handle them under the WTO's dispute settlement system."

Imports of U.S. chicken to China have plunged 90% since the imposition of the tariffs, which are largely seen as retaliation for U.S. duties of 35% on Chinese tires.

The two countries are also sparring over steel, electronic payment services, wind energy equipment and industrial raw materials such as zinc and bauxite.

Before the battle over chicken erupted, U.S. poultry farmers enjoyed steady, high-margin business selling unwanted parts to China.

In 2008, about half the $677 million worth of chicken sold to China were chicken feet, sold for up to 80 cents per pound compared with just pennies in the U.S., according to Time magazine.

Although poultry is growing in popularity in China (KFC is the king of fast food in China and expanding rapidly), pork is still the overwhelming meat of choice.

By one estimate, Chinese consume three times as much pork as chicken at nearly 100 pounds per capita each year.

With inflation driving up prices for pork in China, U.S. hog farmers have found themselves in the opposite situation of their poultry-raising countrymen. Imports of U.S. pork have risen fivefold the first seven months of this year, compared with the same period last year, according to the state-owned China Daily.

China and the U.S. now have 60 days to resolve the current dispute on their own. If negotiations fail, the WTO can launch proceedings.

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-- David Pierson
Twitter.com/dhpierson

 Photo: A woman picks out chicken wings and legs at a market in Shanghai, China, on Wednesday. Credit: Qilai Shen / Bloomberg

U.S. ambassador warns China: Foreign businesses feel unwelcome

Gary Locke
U.S. Ambassador to China Gary Locke has been something of an enigma to the Chinese in the month he's been in Beijing.

His no-frills style of traveling coach on planes and buying his own coffee at an airport Starbucks has divided observers used to seeing pampered Chinese officials. Is it a publicity stunt or something local leaders should emulate, many wondered.

Still, one of the remaining questions about the third-generation Chinese American was whether he would be more sympathetic toward Chinese interests. Although such a query may seem fringe in the U.S., it's not out of the ordinary in China to equate race with loyalty. As one popular saying goes, "You can't betray your ancestors."

But speaking to American executives Tuesday in the Chinese capital, the former Washington governor showed no hint of softening U.S. demands. He called on Beijing to appreciate its currency, eliminate trade and investment barriers and strictly enforce intellectual property rights.

Locke also echoed growing concerns from foreigners that China was becoming an increasingly unwelcome place to do business.

"China's current business climate is causing growing frustrations among foreign business and government leaders, including my colleagues in Washington," Locke said in the speech, which outlined his vision of the U.S.-China economic and trade relationship.

Locke warned if China's economy didn't allow wider foreign access, "it will mean less innovations from Chinese businesses, fewer opportunities for the Chinese people [and] slower growth for the Chinese economy."

The ambassador cited regulations in industries such as mining, banking, energy and transportation as being unduly restrictive and, as a result, "creating seeds of doubt in the minds of foreign investors as to whether they are truly welcome in China."

He offered credit cards as an area in which foreign banks could play a larger role to help boost sorely needed domestic consumption in China. Chinese banks are mostly geared toward serving state-owned companies and aren't permitted to compete in interest rates. A recent survey by the accounting firm KPMG showed profits of foreign banks lagging behind their Chinese counterparts.

Continue reading »

Wealth rises in China with increasing social cost

Porsche in China
Economic conditions around the world may be deteriorating, but you couldn't tell it by the headlines in China.

The latest list of the country's mega-rich was released last week, showing tycoons of the property, consumer goods and the Internet industries bursting with cash in another banner year of wealth creation.

Another report says Chinese millionaires will make up half the population of high-net-worth people in Asia in the coming years.

HSBC is predicting that China will overtake Japan this year as the world's largest consumer of luxury goods; a Chinese investor is trying to buy a chunk of Iceland for $8.8 million; and news reports Tuesday said cash-strapped Rome is cozying up to Beijing hoping it'll open its checkbook to invest in Italian bonds and companies.

Whether its fine wine, yachts, private planes or man bags, growing wealth and conspicuous consumption have been one of the most enduring Chinese story lines in recent years.

But at what price?

There's a growing unease about the gap between rich and poor in China -- a rift that appears to be widening and threatening the government's motto of stability at all costs.

"Becoming rich through honest work and legal means is glorious. But at the same time, the public is worrying that the widening wealth gap between rich and poor is hurting social harmony," read an official New China News Agency editorial Friday.

To put the disparity in perspective, the vast majority of China's 1.3 billion people aren't even subject to income taxes because they earn too little. Only 24 million people make the minimum $545 monthly income necessary to be taxed, according to the Ministry of Finance.

China's per-capita annual income of $7,600 ranks below that of Angola and Albania. 
 
As food and property prices move higher, populist resentment grows. Take away outrage over the privileged elite, corruption and mistresses and there would be a lot less to write about on China's wildly popular micro-blog services.

(The scandal du jour is over the beating of a Beijing couple at the hands of 15-year-old driving a BMW without a license. The boy, Li Tianyi, turned out to be the son of a famous People's Liberation Army singer).

After decades of imploring its people to get rich, China's communist rulers are now asking citizens to dial the ostentation down a notch. Earlier this year, Beijing banned billboards that promoted "hedonism, lavishness and the worship of foreign things," Bloomberg reported.

"The government is facing a conflict," Michael Ouyang, representative of the World Luxury Assn. in China, told the Washington Post. "They don't want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don't want to limit luxury products because it's good for the economy. So they're facing a dilemma."

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-- David Pierson
Twitter.com/dhpierson

Photo: Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high-end housing complex in Beijing. Credit: Diego Azubel / EPA

China inflation eases in August

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China’s inflation eased in August from a three-year high, giving central leaders much-needed breathing room in the face of a worsening global economy.

The National Bureau of Statistics said Friday the country’s consumer price index rose 6.2% from a year ago -– down from 6.5% in July, which was a 37-month high.

Though inflation remains well above a 4% annual target, analysts say the problem may have peaked, diminishing the need for the government to employ tightening measures.

China’s leaders will need fiscal flexibility if a major financial downturn ripples across the globe.

“Although we have entered a period of structurally higher inflation, the moderation in the CPI reading is encouraging and could give the government more policy leeway at a time when market concerns have shifted towards the potential for slower growth in the global economy,” said Jing Ulrich, J.P. Morgan’s chairman of global markets for China.

Falling food prices were largely responsible for tempering inflation last month, rising 13.4% from a year ago compared to 14.8% in July.

But non-food inflation rose 3% from a year earlier, slightly up from July’s reading of 2.9%.

“China’s inflation is down but not out,” said Alistair Thornton, an economist for IHS Global Insight. “The moderation in inflation is not broad-based.”

-- David Pierson 

Twitter.com/dhpierson

Photo: Customers look at prices for vegetables at a supermarket in Hefei, China. Credit: Reuters

Asian shares tumble on grim U.S. jobs report

South Korean currency trader; Asian shares tumble

Asian shares suffered heavy losses Monday, the first day of trading after last week's bleak U.S. jobs report intensified fears of a global recession.

Japan's Nikkei 225 index was down 1.8%, Hong Kong's Hang Seng index lost about 3% and South Korea's Kospi nosedived 4.4%.

China's benchmark stock index slumped 2% to close at a 13-month low on fears the government would continue to tighten monetary policy.

Chinese Premier Wen Jiabao said last week that stabilizing consumer prices is the government's chief priority.

At a news conference in Beijing on Monday, World Bank President Robert Zoellick said inflation remains China's biggest short-term risk.

The former U.S. deputy secretary of State was meeting Chinese leaders in preparation of a joint report to be released later this year outlining steps China needs to take to rebalance its economy away from exports and investment and toward domestic consumption.

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-- David Pierson

Photo: A South Korean currency trader covers his face with his hands in front of screens Monday. Credit: Ahn Young-joon / Associated Press

China's embattled cabbies highlight working class struggles

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Woe is the taxi driver in China.

The roads are clogged with about 40,000 new cars a day, the price of gasoline has doubled in the last five years and passenger fares have barely budged even though everything else in the country is getting more expensive.

Fed up with their shrinking profit margins, 1,500 cabbies in the eastern city of Hangzhou went on strike this month demanding higher fares.

“Ten years ago, taxi drivers belonged to the high income group. Now we have become part of the low income group,” a Hangzhou cab driver told the Oriental Daily, explaining how his pay after expenses had dropped from about $730 a month six years ago to $470 today.

It’s no wonder then that taxi drivers have become the poster children of China’s nagging inflation, which grew 6.5% in July from a year ago to reach a 37-month high.

Their struggle to make ends meet underscores the pressure on China’s broader working class population who are most vulnerable to consumer price increases. And when they strike, they remind the central government how inflation can trigger social unrest.

“Taxi drivers can’t participate in the drafting of polices relating to them, and can’t protect their rights through the courts or labor unions, which means they have no choice but to go on strike,” Guo Yushan, a researcher at the privately funded think tank Transition Institute, told the Financial Times. “If the system doesn’t change, the strikes will continue in different cities.”

Guo said there have been 60 taxi strikes since 2004, including a violent demonstration by 9,000 drivers in the western city of Chongqing in 2008.

In an article published Thursday in the official Communist Party mouthpiece the People’s Daily, cab drivers in Beijing said they had to work up to 18 hours a day and give half their earnings to lease their cars.

“I wish I can have some proper rest,” a driver surnamed Chen told the newspaper. “I work every day, no holidays.”

Beijing taxis charge about $1.50 for an initial three kilometers (1.86 miles). Fuel surcharges of about 30 cents are added after a certain distance. By comparison, New York City cabs start at $2.50 for the first one-fifth mile before entering a byzantine pricing matrix.

The problem for Beijing drivers is that they make their money on distance, not time. Sitting in the capital’s choked roads stifles their profits.

They’re also responsible for their own maintenance and gas. Fuel prices in China have more than doubled in the last five years to $4.63 a gallon even though cab fares have largely stayed the same.

There have been some gains. Shanghai boosted fares by about 30 cents last month. The drivers in Hangzhou returned to work after receiving subsidies and promises of a fare hike.

But a Beijing cabbie told a Times staff member he was skeptical fares would increase in the capital because prices had to appear stable and affordable in the country’s showcase city. He said drivers were frustrated but he and others were too scared to ever go on strike because of official retribution.

“I couldn’t make a living doing anything else if [the authorities] even saw me near a strike,” he said. “I’d be blacklisted. I couldn’t get a license to open a small shop.”

--David Pierson 

Photo: Striking taxi drivers gather near their parked taxis under a bridge in the suburbs of Hangzhou, Zhejiang province, August 3, 2011.  Credit: Reuters / Aly Song.

Biden's 'noodle diplomacy' a boon for Beijing restaurant

Biden
He may not have ordered the signature bowl of guts, but Vice President Joe Biden’s stop last week for lunch at a Beijing family-owned eatery during his state visit has proven a boon for business.

Diners have been lining up outside Yaoji Chaogan, reportedly waiting as long an hour for a table at the no-frills restaurant specializing in pork liver and intestine soup.

"Usually there aren't so many people at this time, and you can get a table quickly. But customers began to gather all day long after Biden's visit," a 76-year-old regular customer told the Global Times.

Calls to the restaurant by The Times went unanswered Monday.

Some customers have been asking for the “Biden set,” according to the Beijing Evening News.

The vice president, who played it safe Thursday by ordering steamed meat buns, smashed cucumber salad and noodles topped with soy bean paste, was lauded in state media for his “noodle diplomacy.”

His everyman gesture came days after a photograph of U.S. Ambassador to China Gary Locke buying his own coffee and carrying a backpack at Seattle-Tacoma International Airport went viral here. Online commentators said Chinese officials would consider such tasks beneath them.

Biden’s $12 meal also set off discussion about the cost of dining out at a time when soaring food costs have helped drive inflation in China to a three-year high.

“How long can the price Biden enjoyed last?” asked a micro-blogger named Yupi.

Food is central to Chinese culture. Even what you eat for lunch says a great deal about who you are, according to translations here and here of a pair of online photo essays.

An editorial in the Global Times on Sunday even went so far as to suggest the vice president’s affordable meal painted an anachronistic picture of China.
 
“China used to be the low-cost paradise for multinational companies, having won the name of the world's manufacturing factory,” wrote John Gong, an associate professor at the University of International Business and Economics in Beijing. “But things have changed greatly over the years, as the yuan appreciated and the domestic wage levels climbed.

"Today the low-cost manufacturing value proposition is all but a myth, and if this trend continues, before long the country will soon wake up to see that it doesn't have much of a competitive advantage anymore in world markets.”

All this from a bowl of noodles.
 
-- David Pierson 

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Photo: Vice President Joe Biden stops at a restaurant for lunch in Beijing. Credit: Ng Han Guan / Associated Press

Asian shares join global slide in early trading

Asian Stocks
Asian stocks fell in early trading Friday after steep losses in European and U.S. markets over intensifying debt concerns and poor economic data.

Japan's Nikkei 225 index fell 2.1% shortly after opening, South Korea's Kospi was off 4% and Australia's SP/ASX 200 dropped 2.6%.

Analysts said Asian investors were concerned about U.S. data that showed declining home resales and business activity.

"Investors have been spooked by these data. They are now focusing on next week's data such as U.S. GDP," Yumi Nishimura, a senior market analyst at Daiwa Securities, told Reuters. "Retail investors may buy defensive stocks on dips, but such buying may not have an impact on the overall index."  

-- David Pierson

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

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