China trade ablaze with new anti-dumping investigations, Plus Beijing annexes part of Gulf of Tonkin -- China Boss News 3.22.24
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What happened
Brazil is the latest to pull the trigger on a series of probes “into the alleged dumping of industrial products by China” as it “reels from a wave of cheap imported goods” including metal sheets, pre-painted steel, chemicals and tires, Financial Times reported last week.
André Passos Cordeiro, a chemical industry association chief, told FT that his group “[l]ast year saw one of the most critical situations in the entire history of the national chemical industry” due to low cost Chinese imports.
“We see temporary increases in import tariffs as an indispensable regulatory tool for combating these predatory operations and preserving the domestic market,” he said.
Another investigation was launched earlier this month into Brazilian steel companies’ allegations that significant upticks in “imports of particular types of carbon steel sheets from China” were squeezing the local industry.
A separate FT report, as I noted last week, revealed the United Steelworkers union is also asking the White House to investigate China’s “unfair economic practices in the shipbuilding and maritime logistics sectors.”
These trade investigations are not outliers, and, experts say, they are likely to set off inquiries elsewhere as other countries sear from the heat of China’s export explosion.
The EU has already confirmed investigations into Chinese electrical vehicles and biodiesel. Vietnam, Mexico, Malaysia and Indonesia, India and, even, Turkey could be next to start their own probes, while further investigations into new dumping allegations are just a matter of time in Washington and Brussels.
Why it matters
Overcapacity by choice
The Chinese government, under Xi Jinping’s leadership, is redirecting financial support from property developers to emerging tech and advanced manufacturing sectors in an effort to supercharge development.
But a recent report from Citigroup researchers warns that the success of Xi’s new growth model “will ultimately hinge on the making of China’s consumer economy,” which is reeling from pandemic shutdowns and the property crisis.
To accomplish this, economists have called on Beijing to divert the flow of financial resources from China, Inc. to the pockets of ordinary individuals.
But this is something officials have been loathe to do since they have come to rely upon the harnessing of revenues, supply chains, operations and talent from the Party’s gargantuan “corporatized political structure.”
In a 2022 Financial Times op-ed, the go-to expert on China’s very lop-sided macroeconomic structure, Peking University finance professor Michael Pettis, argued that China’s large “[trade] surpluses are symptoms neither of manufacturing prowess nor of a culture of thrift, but are … a consequence of the great difficulty China has had in rebalancing its domestic economy.”
“The problem seems to be that Beijing is only able to implement various forms of supply-side policies, including business subsidies, export subsidies, ‘window guidance’ for bank lending, investment in infrastructure and logistics, business tax rebates and so on. After three very successful decades of relying on supply-side measures to boost growth, Chinese authorities in the past decade have found it very difficult — almost certainly for both political and institutional reasons — to switch to demand-side measures to support growth,” he said.
Today, Beijing’s inability to support “the demand side” of China’s economy is unleashing a wave of anti-China sentiment and protectionism.
“China’s surpluses in manufactured goods are now roughly twice as big, relative to the global economy, as the biggest surpluses achieved by Japan during the 1980s or Germany right before the global financial crisis,” New York Times’ Keith Bradsher earlier this week reported, citing calculations by Brad Setser and Michael Weilandt, economists at the Council on Foreign Relations.
The CEO of Swiss solar panel maker Meyer Burger told Reuters his firm “may have to close its loss-making production plant in Germany,” if Berlin doesn’t step in to help.
"Chinese manufacturers are deliberately selling goods in Europe far below their own production costs. They can do this because the solar industry in China has been strategically subsidized with hundreds of billions of dollars for years,” he said.
Looming trade wars
Note Burger’s use of the word “strategically.”
It bears repeating for its relevance. An attack on China, Inc.’s free access to international markets will be seen by Beijing as an attack on the Party, itself.
And, rightly so, since the former is really just the latter’s cash - and influence - “cow”.
In an attempt to deter such attacks, Xi will surely take vengeance.
Earlier this month, China’s commerce ministry announced the selection of French brands Martell & Co, Societe Jas Hennessy & Co, and E. Remy Martin & Co. to begin its own anti-dumping probe into European brandy imports.
The move was widely seen as retaliation for France’s push to “hit” Chinese electrical vehicles with an EU subsidy probe, Politico said.
Nonetheless, if Xi continues to insist other countries subsidize his distorted industrial policy, which dumps Chinese goods across borders without a comparable amount of consumption to offset losses, then we are at an impasse.
Pettis, the professor, who is also a senior fellow at Carnegie China, said, more recently, in December, that “to accommodate” China’s new growth model over the next decade, in its current form, would mean that “other major countries would have to allow their economies to lose some of their investment and manufacturing share.”
"Even without the geopolitical tensions of recent years and policies in the United States, India and the European Union ... this would be highly unlikely," he wrote.
Jens Eskelund, president of the European Union Chamber of Commerce in China, last week told reporters that trade relations between Europe and China are in a “slow-motion train accident,” and that he “was seeing ‘overcapacity across the board.’”
“I’ve met very few companies that do not face it. We haven’t seen all that capacity coming online just yet. This is something that’s going to hit markets over the next few years. It is hard for me to imagine that Europe would just sit by and quietly witness the accelerated deindustrialization of Europe, because of the externalization of low domestic demand in China,” he warned.
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