China Ties Aiding Europe to Its Own Trade Goals
China Ties Aiding Europe to Its Own Trade Goals – NYTimes.com.
Premier Wen Jiabao on Wednesday offered to help Europe. But, in an unprecedented move for China, he linked the offer to a potentially onerous demand: that Europe renounce its main legal defense against low-priced Chinese exports.
Mr. Wen urged the European Union to classify China as a “market economy” instead of a “nonmarket economy.”
In international trade legalese, the new designation would make it almost impossible for Europe to impose tariffs on Chinese goods considered unfairly cheap.
China, with an estimated $3.2 trillion in foreign reserves, is seen as potentially a global banker. But most of its lending has come in the form of buying nearly $2 trillion in United States Treasury bonds and other forms of American debt. China already buys billions of euros worth of European debt each month, but that level of lending has done little to ease the euro zone’s crisis.
The new market economy designation Mr. Wen seeks would let China avoid the steep import duties assessed on Chinese companies that sell goods in Europe for less than it costs to produce and market them — or what trade lawyers describe as the “normal value” of these goods.
China’s critics also suggest that close links between many companies and the Beijing government make it impossible to assess the extent to which Beijing helps companies keep prices low at home, through subsidies, preferential loans or policies like free or discounted land for factories. So it would become extremely difficult to win an antidumping case if China were labeled a market economy.
Its top leaders have mandated that the renminbi not appreciate more than a few percent against the dollareach year, despite large trade surpluses and strong inward investment, and the central bank has been forced to buy dollars and euros on an immense scale to ensure that.
NeilS – It seems that China is again flexing its newly found economic might. With continued explosive growth, vast trade surpluses, and massive reserves of foreign currency, it makes sense that China would be a major player in funding other countries’ debts. And it certainly makes sense for them to try to attach a few strings to the big money they are willing to lend.
Nevertheless, Europe must consider the effects of very cheap Chinese goods that some consider “unfairly priced” flooding their markets. With already slow economic and employment growth, Europe may be stuck in a tough spot. Certainly extra capital flows would be nice in easing the sovereign debt crisis, but what price is worth paying? I suppose if the alternatives to succumbing to Chinese demands are insolvency and a break up of the Euro, then European leaders may just want to play ball.