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Business Tianjin Magazine - Business English Magazine in China
China takes EU shoe complaint to WTO
Friday, 05 February 2010 15:54
China filed a World Trade Organisation complaint against the European Union on Thursday over its treatment of imported footwear, escalating a long-running dispute between the trading partners.
The move follows the EU’s decision in December to extend anti-dumping duties against Chinese and Vietnamese footwear for 15 months. It comes at a time of rising tension between China and its western trading partners – a situation that has been exacerbated by the economic recession.
China’s ministry of commerce said the EU tariffs “damage the legitimate rights and interests of Chinese enterprises”.
The duties amount to 16.5 per cent for Chinese imports and 10 per cent for Vietnamese. They were originally rejected by EU member states in a non-binding vote in November. But Germany, Austria and Malta later changed their positions amid heavy lobbying by the Commission.
Many European retailers and global shoe brands, which source numerous products from China, also opposed the opposed the move.
In what was seen as retaliation, China quickly slapped duties on imported carbon-steel fasteners from Europe.
In its filing, China is requesting consultations with the EU to try to resolve the matter. If the two sides cannot agree a settlement within 60 days, then China would request a ruling from the WTO.
It is only the second time Beijing has taken the EU to the WTO’s formal dispute resolution process and comes as Beijing is becoming more assertive on the world stage on issues ranging from climate change to US arms sales to Taiwan.
The European Commission said on Thursday that it had “taken note” of China’s action, and that it had “scrupulously followed” WTO rules in reaching its decision.
The complaint comes at an awkward moment for Brussels, with the new trade commissioner, Belgium’s Karel De Gucht, recently appointed but not yet confirmed by the parliament. That is expected to occur next week.
During a confirmation hearing last month, Mr De Gucht pledged to apply anti-dumping measures based on rules – not politics – and to deepen the dialogue with China, which has quickly become one of the EU’s largest but most contentious trading relationships.
The row has emerged as a closely watched test of the EU’s commitment to free trade in the middle of an economic recession. It has pitted small shoemakers in Italy and Spain against large retailers from the UK and elsewhere that have increasingly outsourced production to Asia.
The EU first imposed the duties for two years in 2006 after a surge of low-cost imports eroded the market share of domestic footwear manufacturers. European market share has since stabilised.
Lord Mandelson, who imposed the original duties in his previous role as European trade commissioner, lobbied heavily against their renewal. Lord Mandelson, the UK business secretary, warned that such a move could damage trade relations with China and Vietnam.
In a statement on Thursday, the European Footwear Alliance, whose hundreds of members includes retailer Adidas and Clarks, said it shared China’s view that the EU decision had been based on “a very questionable investigation and a flawed analysis”.
“The extension of the footwear duties opens the door to retaliatory measures on EU exports to China and puts paid to European leaders’ repeated pledges to defend free trade,” the group added. “The EFA calls on the European Commission to take immediate action to prevent relations between the EU and China from degenerating further.”
Concerns over the potential for a trade war involving China and the west have been growing in the aftermath of the financial crisis.
Beijing has refused to allow its currency to appreciate since the onset of the crisis despite complaints from many of its trading partners that it is pursuing a mercantilist policy that puts other countries at a disadvantage.
China Regulator said to seek to curb third mortgages
Tuesday, 02 February 2010 16:53
Feb. 2 (Bloomberg) -- China’s government, seeking to stem property speculation, told banks to raise interest rates on third mortgages and demand bigger down payments for such loans, a person with knowledge of the matter said.
The China Banking Regulatory Commission warned lenders of the risks associated with “hot money” flowing into the property market, the person said, requesting anonymity because the agency hasn’t published the measures. Mortgage defaults in China are rising, the person said without giving figures.
China’s $1.4 trillion of new lending last year ignited a real-estate boom, with prices in 70 cities rising at the fastest pace in 18 months in December. An index tracking property companies traded in Shanghai fell to a nine-month low today on concern the government will tighten real-estate credit to prevent a bubble from forming.
Tighter rules on third mortgages “should have some effect on home prices, especially in regions such as Hainan,” said May Yan, a Hong Kong-based analyst at Nomura International HK Ltd.
China’s southern Hainan province will suspend land leasing and development approvals after developers flocked to the island following a government announcement to promote local tourism, fueling concerns about a property bubble, the Xinhua News Agency reported Jan. 17, citing local Party chief Wei Liucheng.
‘Bubble’ to Burst
The regulator also told banks to stop granting new loans to developers found to be hoarding land or intentionally delaying property sales, and to take measures to make sure existing advances are repaid, the person said.
Banks were told they should reject loan applications from people buying homes for “investment and speculation” purposes, the person said. Lenders were asked to raise down payments and interest rates for third mortgages by a “broad margin” if they’re unsure of a borrower’s intentions, the person said.
The Shanghai Composite’s 34-stock property index fell 1 percent today to the lowest since April 29, 2009. Andy Xie, an independent economist who was formerly a researcher at Morgan Stanley, said the nation’s real-estate “bubble” is poised to burst as credit dries up.
As bank lending slows, “it’s very difficult to see this demand continuing,” Xie, formerly Morgan Stanley’s chief Asian economist, told Bloomberg Television in Hong Kong today.
Credit Tightening
The State Council, China’s cabinet, said Jan. 10 it will step up guidance on property lending and seek to counter speculative capital from abroad to tackle “overly-rapid” price gains in some cities. It told banks to abide by a minimum 40 percent down-payment requirement for borrowers’ additional mortgages and set interest rates according to risk assessments.
China’s banks are required to price loans for second homes 10 percent above the benchmark lending rate. The rate for five- year loans in China stands at 5.94 percent.
“The CBRC will continue to enhance monitoring of the property market, timely remind banking institutions of risks, and guide banks to optimize loan structure and prevent lending risks by using regulatory indicators including capital adequacy ratio, loan provision ratio, liquidity ratio and down payments,” the regulator said in an e-mailed statement.
In a Jan. 12 move that surprised economists, the central bank ordered lenders to set aside larger reserves for the first time since June 2008, the most drastic step so far to cool the economy. China’s economic growth accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007.
Foreign Buyers
Lenders extended 952 billion yuan ($139 billion) of home loans in the first nine months of 2009, a fourfold increase from a year earlier, according to the People’s Bank of China. The PBOC doesn’t break out second or third mortgages.
The CBRC also said capital flows into Chinese assets have increased “noticeably” as investors engaged in so-called carry trades, according to the person. A carry trade involves borrowing in a country with low interest rates, converting the money into a currency where borrowing costs are higher, and lending the funds at a higher rate.
Almost 40 percent of buyers of luxury residential properties worth more than 10 million yuan last year in Shanghai were from overseas, the person said. The CBRC found one case where 38 foreign citizens who never entered China managed to take out mortgages from a bank in Shanghai through their agents and lawyers, without providing necessary documentation, according to the person.
European Crisis Impact on China ‘Limited’
Monday, 28 June 2010 13:00
June 28 (Bloomberg) -- The affect of the European debt crisis on China will be “limited in scope,” Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary published in today’s China Daily newspaper.
The European debt crisis is “very different” from the 2008 financial crisis because it has so far been confined to smaller European nations, with neither Germany nor France having been greatly affected, Yi wrote.
Economic recovery in the U.S., Japan and other emerging markets and productivity gains for China’s export-oriented companies combined to spur increases in exports during the first five months of this year, Yi wrote.
China’s central bank also has “enough ammunition” to check increases in inflation, Yi wrote. Improved economic conditions in China and abroad will ease inflation pressures in the second half of this year, Yi wrote.
China to stay course, with flexibility
Friday, 29 January 2010 16:29
DAVOS, Switzerland—Chinese Vice Premier Li Keqiang said China will maintain its existing economic policies this year but will increase policy flexibility to manage inflation expectations.
Speaking Thursday at the World Economic Forum here, Mr. Li said that while China's economy faces a complex environment this year, its long-term upward trajectory remains in tact despite the recent global crisis.
The speech marked the highest-profile international appearance for Mr. Li, who is widely considered the heir apparent of Premier Wen Jiabao. While he addressed issues ranging from domestic economic reforms to global governance, Mr. Li avoided sensitive topics such as the yuan's value and growing trade frictions between China and the U.S.
Mr. Li said that to achieve more sustainable economic growth, his government needs to strike a balance among promoting fast growth, readjusting economic structure and properly managing inflation risks.
Mr. Li noted that China's consumer prices have started rising again but said Beijing will continue its proactive fiscal policy and moderately easy monetary policy, the government's standard language for its efforts to pump the economy with generous lending. Mr. Li said Beijing needs to make such policies "better targeted and more flexible in response to new circumstances."
Li's comments are mostly a reiteration of Beijing's current assessment of its economy, but the reference to inflation and policy flexibility highlights the authorities' subtle shift toward a slightly tighter monetary policy.
China's resurgent growth is in part a product of the government's massive stimulus package, mainly supported by record levels of lending by state banks last year that stoked domestic construction and consumption. China's gross domestic product expanded 10.7% in the fourth quarter from a year earlier, bringing full-year growth to 8.7%. That came in above the government's targeted 8% growth and well above many economists' estimates.
Underscoring the inflation risks posed by last year's credit surge, consumer prices in December rose 1.9% from a year earlier, accelerating sharply from the 0.6% rise in November, which followed nine months of declines.
Showing growing concerns over rising inflation pressure, China has in recent weeks moved to withdraw liquidity from the financial system. In recent days, state-owned banks have been instructed to temporarily suspend lending. The moves have sent jitters around international markets since China has become the engine of growth for a still-struggling global economy.
Commenting on China's future growth model, Mr. Li suggested the country needs to look inward. "China's domestic market has huge potential," Mr. Li said. "We will strive to expand domestic demand, especially consumer demand."
Addressing a largely Western audience, Mr. Li also said China will remain committed to further opening up its economy and market, describing different nations as "passengers on the same boat."
Describing different nations as "passengers on the same boat", Mr. Li also urged the promotion of a more open global market.
"In the past year or so, countries have voiced opposition to trade protectionism. However, protectionist practices in various manifestations have kept emerging," he said. "This is what the international community should firmly fight against."
China shares fall on removal of export tax rebates
Thursday, 24 June 2010 14:56
Chinese shares fell Wednesday on worries that the removal of tax rebates might hurt exporters.
The benchmark Shanghai Composite Index shed 18.83 points, or 0.7 percent, to close at 2,569.87. The Shenzhen Composite Index for China's smaller second exchange slipped 0.2 percent to 1,045.16.
China announcement Wednesday that it will scrap export tax rebates for hundreds of products in July for the first time since it imposed them in late 2008. That follows the weekend statement that Beijing will allow more flexibility of its currency exchange rate. Analysts said the surprising move would erode corporate earnings.
"It is a double crush for Chinese exporters," said Zhang Fan, an analyst for Debon Securities in Shanghai.
Steel and petrochemical shares, industries that used to enjoy big rebate rates, were dampened by the news.
Baoshan Iron & Steel Co., the country's biggest steel producer, fell 2.7 percent to 6.08 yuan, while Beijing Shougang Co. slipped 1.4 percent to 3.54 yuan.
Fertilizer manufacturer Shandong Liaherd Chemical Industry Co. dropped 2.1 percent to 9.49 yuan, while Shaanxi Xinghua Chemistry Co., declined by 1.8 percent to 8.81 yuan.
Airlines retreated after a brief-lived rally on hopes for a rising yuan that would reduce their debts that are denominated in foreign currencies. China Southern Airlines Co. lost 3.1 percent to 6.69 yuan, while Air China Co. gave up 2.3 percent to 11.3 yuan.
In currency markets, the yuan weakened to 6.8105 to the U.S. dollar, down from Tuesday's close of 6.8102.
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