World economy too reliant on China and US, says IMF

[FaGal]

World economy too reliant on China and US, says IMF
www.guardian.co.uk - Mark Milner - March 7, 2005 - The Guardian


The International Monetary Fund is worried that global growth is becoming too reliant on the performance of the US and Chinese economies, according to a report yesterday.

While the Chinese government is seeking to slam the brakes on the country's soaring infrastructure spending, the treasury secretary, John Snow, described the US economy as resilient and dynamic. According to today's edition of the German newspaper Handelsblatt, the IMF's forthcoming World Economic Outlook report will warn of increasing risks to global growth if the US and China slow down at the same time.

"Global growth is to an inappropriate degree linked to the United States and China," the IMF report will say when it is published next month.

"The eurozone and Japan, which together have about one-fourth of the world's gross domestic product, have once again disappointed. Thus the risks are increased that there could later be a sharp downturn especially if the United States and China are hit with economic slowing."

On Saturday the Chinese premier Wen Jiabao said that the government was seeking to restrict the growth in spending on fixed assets to 16% - down from 25% in 2004. Workers have been told to expect smaller pay increases.

As China seeks to put the brakes on its economic expansion Mr Snow was bullish in his assessment of the strength of the American economy despite the renewed strength of the oil price over the last month.

Although he acknowledged that energy prices were "way too high" Mr Snow said they were not in a danger zone as far as the US economy was concerned.

"The American economy is so strong, so robust right now that we have blown right through these very high energy prices.

"The American economy is very resilient, its very adaptive, its very dynamic, but clearly these energy prices create headwinds."

[FaGal]

IMF spells out risks of imbalance in global growth
news.ft.com - By Claus Hulverscheidt in Berlin, Ralph Atkins in Frankfurt and Andrew Balls in Washington - March 7, 2005


The global economic upswing is becoming “increasingly unbalanced”, with the US still growing surprisingly fast but most other industrial nations falling short of expectations, the International Monetary Fund believes.

The divergences in economic performance, and dependence on the US and China to power economic growth, may widen global imbalances and “raise the risk of a more significant slowdown later on”, the IMF warns in a draft of its next World Economic Outlook, a copy of which has been obtained by Financial Times Deutschland, the FT's German sister newspaper.

While the IMF revised upwards its outlook for US growth upwards this year, it slashed the growth outlook for Japan and the eurozone.

The IMF expects a further depreciation of the dollar and, while noting general agreement on the measures needed to tackle global imbalances fiscal consolidation in the US, structural reform in Europe, and currency flexibility in Asia it warns: “Implementation has lagged.”

Japanese growth has stalled since early 2004, the IMF says, with exports and investment faltering. The fund cut its 2005 growth outlook to 0.8 per cent this year, down from the 2.3 per cent growth it forecast last September.

The report notes that eurozone growth slowed markedly in the second half of 2004.

“While some tentative signs of renewed growth are emerging, the upturn in 2005 is expected to be significantly weaker than earlier thought,” it said.

The IMF also clashes with the European Central Bank on interest rate policy in the 12-country eurozone. Whereas the ECB has signalled that it wants to raise rates at some stage, the IMF said eurozone growth had “disappointed” and that monetary policy “should remain firmly on hold until a self-sustaining recovery is clearly established”.

Forecast eurozone growth has been cut to 1.6 per cent this year from the IMF's earlier forecast of 2.2 per cent.

“In both the euro area and Japan, further sharp currency appreciation is an important risk,” it said.

The US economy, in contrast, has continued to grow above trend, at 3.7 per cent this year and next, “although with household savings close to zero a retrenchment in private consumption remains a risk, particularly if house price increases were to slow”.

The UK economy, forecast to grow 2.6 per cent this year and next, remained robust, the IMF said, buoyed by domestic demand.

Overall, the IMF expected global GDP growth to moderate to 4.3 per cent in 2005, 0.8 percentage points slower than in 2004.

Although the balance of risks to global growth has improved in recent months, it remains weighed down by the high oil price.

[FaGal]

China moves to free the shackles from trade
www.atimes.com - March 9, 2005


BEIJING - China will continue to actively pursue the establishment of free trade agreements (FTAs) after starting talks on this with 23 countries this year. Strategic progress is expected this year and next, paving the way for China to expand its regional cooperation.

Beginning this year, China and the Association of Southeast Asian Nations (ASEAN) have kicked off the implementation of an agreement on the trade of goods under their FTA pact. The practical implementation of China's first FTA will be critically important as it will provide an example to other counties, said Jin Ming, an expert from the Chinese Academy of International Trade and Economic Cooperation. "China's FTA negotiations with the Gulf Cooperation Council [GCC], Chile and Pakistan will also enter a substantive stage this year," he said.

China and the GCC will start FTA negotiations in a matter of weeks, he said. To China, the possible FTA means easier access to GCC members' rich oil reserves and strong capital muscle. The GCC possesses 45% of global oil reserves and accounts for 20% of world oil production. These rich Arab countries also have large overseas investment, totaling US$1.5 trillion at the end of 2003. A tariff-cutting FTA would make Chinese manufacturers more competitive in GCC countries, home to 20 million consumers.

Sino-GCC trade surged 10 times from $1.5 billion in 1991 to $16.9 billion in 2003, according to Chinese statistics. "But there is still room for growth," Jin pointed out. More importantly, the GCC countries - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - will become bases for Chinese goods entering other Arab countries, Jin added.

China also has its eyes on Latin America, with Chile being the bridge. The two countries started FTA talks this January. Chile is the first Latin American country to have entered into FTA talks with China. The Chinese government expects it will become a successful model for China's relationship with Latin America, said Lu Guozheng, an expert on Sino-Latin American trade.

Yi Xiaozhun, China's assistant minister of commerce, said he believed the development of Sino-Chilean relations would enhance the country's cooperation with the rest of Latin America. After launching free trade negotiations with Chile, China is considering the feasibility of signing more free trade agreements with other Latin American countries and organizations such as Mercado Commun del Sur (the Common Market of the South, or Mercosur), Lu said. China and Chile are very likely to reach a free trade deal within a year.

Australia and New Zealand were the first developed countries to launch free trade talks with China. A joint feasibility study into whether such a deal should proceed between China and Australia will be completed soon. Australian Trade Minister Mark Vaile will meet China's Commerce Minister Bo Xilai and other Chinese trade officials in Beijing from Tuesday to Friday to ensure that the study on the feasibility of a FTA is finalized before Prime Minister John Howard's visit to China next month.

A timetable for negotiations is expected to be set by Vaile while he is in Beijing. China is Australia's third-largest and fastest-growing trading partner and the nation's fourth-largest export market. Trade between the two countries has quadrupled over the past decade.

As for an FTA with New Zealand, the talks will be special for China as it will be the first such agreement with a developed country. China and New Zealand started the talks in December, which are expected to expand into detailed issues this year. Apart from the trade implications, FTAs with Australia and New Zealand also mean market economy status for China. The World Trade Organization (WTO) will not sanction any possible deal between two countries unless they are equal trading partners. It means any economy should first recognize China as a market economy before it launches FTA talks with it.

New Zealand recognized China as a market economy before it launched talks, and Australia will decide on China's market economy status at the launch of the negotiations. Granting of this status will serve as an example to other developed countries, as few of them recognize China as a market economy, Jin said.

In South Asia, China will begin an FTA feasibility study with Pakistan, while remaining active in promoting economic cooperation with the entire region. The joint feasibility study on the proposed FTA is likely to be completed during the upcoming visit of premier Wen Jiabao to Pakistan in April. Along with the completion of the study, formal FTA negotiations are expected to commence during Wen's visit. Reports say Pakistan and China have agreed on a summary regarding the FTA, which comprises items that would get duty facilitation ahead of the FTA and would be signed in April during Wen's visit.

But for China, a more encouraging prospect would be an FTA with East Asia this year, said Jin. An East Asian FTA, bringing together China, Japan, South Korea and ASEAN member states, should be an exciting goal for China and the entire region, although achieving this will not be a simple task, according to Jin.

Both China and ASEAN members see the benefits offered by an FTA. Figures from the Ministry of Commerce show that trade in goods covered by an "early harvest program" - the prelude to an FTA - between China and ASEAN members, reached $1.7 billion, up 41% year-on-year. The "early harvest program" exempts some products from tariffs before the FTA is completed.

Trade in 188 types of fruit and vegetables between China and Thailand increased 120% since the launch of the program in October 2003. This has helped Thailand achieve a trade surplus of $175 million with China. The result is contrary to local concerns and reports that the FTA with China would place Thai exporters at a disadvantage as they are not fully prepared for competition with China.

China's keen interest in FTAs will be a long-term strategic consideration, according to officials and experts. "FTAs will offer more preferential treatment for members," said an official from the International Department of the Ministry of Commerce. "Within FTAs, members enjoy lower tariffs, less non-tariff barriers and improved market access to goods, services and capital. The cost of trade would therefore be lowered."

The official said FTAs will help Chinese firms obtain raw materials and equipment at a lower cost and also improve services. Chinese customers will also gain better access to cheaper and high-quality goods and services as a result. It is important for China to pursue regional integration rather than develop in isolation, following its entry to the WTO, Jin said.

Regional economic integration is a global trend. There were a total of 305 regional economic arrangements, and internal trade within these areas accounts for 50% of global trade. So, according to Jin, China should actively participate in the process of regional economic integration to meet the challenges of globalization and sustain trade and economic growth.

[FaGal]

New York Times
March 10, 2005
Free of Quota, China Textiles Flood the U.S.
By DAVID BARBOZA and ELIZABETH BECKER

SHANGHAI, March 9 - In the first month after the end of all quotas on textiles and apparel around the world, imports to the United States from China jumped about 75 percent, according to trade figures released by the Chinese government.

The statistics bear some of the first evidence that China's booming textile and apparel trade, unhampered by quotas, could be prepared to dominate the global textile trade and add to trade tensions around the world. The quotas came to an end on Dec. 31 as a result of an international agreement reached in 1993.

In January, the United States imported more than $1.2 billion in textiles and apparel from China, up from about $701 million a year ago. Imports of major apparel products from China jumped 546 percent. Last January, for example, China shipped 941,000 cotton knit shirts, which were limited by quotas; this January, it shipped 18.2 million, a 1,836 percent increase. Imports of cotton knit trousers were up 1,332 percent from a year ago.

These figures may be understated because China ships a large part of its goods through Hong Kong, and those shipments are not included.

Fears that China is going to flood the world market with cheap textile exports have already inflamed tensions between Washington and Beijing because of worries about American manufacturing plants being closed and thousands of jobs being lost.

Already, in January, the first month after global quotas were lifted, 12,200 jobs were lost in the United States apparel and textile industries, according to the Bureau of Labor Statistics. Some analysts have predicted that China could capture as much as 70 percent of the American market in the next two years. Before the end of quotas, about 16 percent of apparel sold in the United States came from China.

Last year, the United States trade deficit with China set a record of $162 billion, making it the largest trade imbalance ever recorded by the United States with a single country. To be sure, some textile importers say this phenomenon may be a one-time surge. Companies, for instance, may have put off shipping goods at the end of last year to avoid the quotas.

"Nobody knows if it's going to last," said Andrew Grossman, who runs GAV, a company that designs and manufactures clothes for Calvin Klein and Emanuel Ungaro. "So you're not seeing it passed on to the consumer."

Because of uncertainty over currency fluctuations and the process of lifting quotas, apparel producers like GAV have not reduced their prices to retailers. Moreover, poor countries like Bangladesh, Cambodia and Sri Lanka are pressing Washington to pass legislation giving them lower tariffs to help support a crucial source of their livelihood. Some trade experts say that China has achieved its status over the years by providing questionable bank loans and subsidies to its industry.

Still, it is clear that efforts to move toward more open trade have freed China and other countries of many textile and apparel quotas and restrictions. And they have set the stage for China to become a global textile and apparel behemoth, lowering clothing prices for consumers around the world but upsetting and rewriting current trade balances.

The January evidence showed blockbuster gains for Chinese textile and apparel makers - a surge that some textile experts had been predicting long before the quotas came to an end.

The 25 countries that are part of the European Union also registered big increases, importing about $1.4 billion worth of textile and apparel goods from China, up from about $975 million a year ago, a jump of 46 percent.

"This is not a surprise; it is not a revelation," said Donald Brasher, president of Global Trade Information Services in Columbia, S.C., which tracks and releases trade figures from around the world and was the first to publish China's official trade statistics. "We're going from a quota regime to a quota-free regime. And China's one of the most competitive producers. What do you expect?"

But representatives of some of the nation's biggest textile and apparel manufacturers say the figures seem to bear out their worst fears: what they see as China's unfair dominance of the world textile trade because of possible currency undervaluation and government subsidies of big textile operations in China.

"The wolf is at the door and only the U.S. government can slam it shut, and it needs to do it right now," said Cass Johnson, president of the National Council of Textile Organizations, a trade group that is pressing the administration to impose immediate limits on Chinese imports.

"The action the government takes or doesn't take will affect 30 million workers around the world and perhaps half a million in this country."

"This isn't like the Y-2K crisis where everyone was afraid of a computer meltdown that never happened," Mr. Johnson added. "This is happening and the consequences are frightening."

In January alone, China shipped more apparel in some categories, like cotton trousers, than it had in the previous year and a half, representing approximately a fourteenfold increase, according to Mr. Johnson's trade group. For instance, China sent nearly 27 million pairs of cotton trousers to the United States; the quota had held the number to 1.9 million a year ago. There were also big increases in everything from underwear to gowns.

China's customs figures, which were released March 1 to Global Trade Information Services, are often the earliest indication of China's exports to the United States.

This Friday, the Commerce Department is expected to release its own trade data with China. However, the figures could include Chinese apparel that was shipped in December, before quotas ended, but that landed in the United States in January. Those figures might show less spectacular jumps in trade with the United States, according to textile industry officials.

Many Democrats in Congress say that imports from China are the biggest trade problem for the United States. Representative Benjamin L. Cardin of Maryland, the ranking Democrat on the trade subcommittee of the House Ways and Means Committee, said in an interview that he would push the administration to pay more attention to China's trading practices.

Some American manufacturers say that China is increasing exports by undervaluing its currency, which makes its products cheaper in dollars for American companies.

The Bush administration says it has put pressure on Chinese officials to revalue their currency and take steps on other trade issues. Moreover, the administration did agree last year to put limits on some Chinese textile and apparel imports in advance of any market disruption.

But importers and retailers, particularly the National Retail Federation, persuaded the Court of International Trade to issue an injunction against the administration's limits. Still, a continued surge in Chinese imports could lead to another push by the administration to provide relief for American apparel and textile manufacturers. If the surge is temporary, the administration is less likely to apply limits.

Brenda Jacobs, the Washington trade counsel to the U.S. Association of Importers of Textiles and Apparel, said she was wary of the new Chinese figures and would wait to see the United States trade figures, which will be released on Friday.

"I just don't know what to expect; there will be shifting of production," said Ms. Jacobs, whose group supported the end of quotas. "But put this in context - there were a lot of companies that held off shipping goods in December in order to be sure they would not be caught in the quota system."


David Barboza reported from Shanghai for this article, and Elizabeth Becker from Washington. Tracie Rozhon contributed reporting from New York.