China's Trade Partners Seek to Maintain Links
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Amid Heated Rhetoric, Some Moderate Tone
To Preserve Access to Markets, Labor
The rising chorus of alarm about China's fast-growing trade and manufacturing is drowning out another message: Not everyone in the world agrees.
There are plenty of voices crying out as China manufactures more, exports more and draws more investment. Mexican President Vicente Fox accuses China of acting like "pirates" by offering tax breaks and other sweeteners to persuade manufacturers to leave Mexico. Europe's trade openness toward Asia and China is "suicidal," declared Italian Economics Minister Giulio Tremonti recently. And in the U.S., the National Association of Manufacturers said this month it would support a novel trade case that, if successful, would trigger penalty tariffs on billions of dollars in Chinese imports.
By Barry Wain in Singapore, Christopher Rhoads in Berlin and Michael Schroeder in Washington
But many of China's trading partners in Europe and Asia are taking a more moderate tone, eager to keep the door open to the growing China market. Indeed, in both the U.S. and Japan -- the two countries leading demands for China to let the value of its currency move more freely -- many companies continue to invest in China, taking advantage of the same cheap labor that others decry. Even the Bush administration has waged the currency battle largely as an exercise in jawboning, figuring that Beijing's help on North Korea is too important to jeopardize.
This ambivalence suggests that even though Washington persuaded other industrial nations to join its call at meetings this month in Dubai for China and Japan to adopt more flexible exchange rates, the U.S. may find it difficult to get any consensus on the issue. And these divisions could strengthen China's hand as it resists U.S. pressure. "Basically, China is being used as a whipping boy as the U.S. finds itself with an economic recovery that isn't producing jobs," says Tan Siok Choo, a Malaysian analyst associated with a government-supported think tank.
Still, election-year politics, a slower than expected U.S. economic recovery, persistent high unemployment and job losses to China will keep the issue alive in Washington through next year. While Chinese officials insist they won't float or revalue the yuan -- a move that could destabilize China's economy by hurting exports and shocking the financial system -- Beijing may take some modest measures to relieve upward pressure on the yuan and appease American anger.
It isn't that other countries don't fear competition from China. In Southeast Asia, for instance, China's ability to attract large volumes of foreign investment has sparked much teeth-gnashing in recent years. But Southeast Asian countries believe their prospects depend heavily on the continued opening and development of China. In sharp contrast with its huge trade surplus with the U.S., China buys more from East and Southeast Asia than it sells there.
"China is a huge and lucrative market," says Laureen Goi, market-development manager of TYJ Food Manufacturing Pte. Ltd, a Singaporean company that sells frozen and dried snack food in China, increasingly from joint-venture factories within China itself.
China has also gone out of its way to woo Southeast Asian countries, politically and diplomatically. It has promised to create a free-trade area in the region over 10 years. Recently, China agreed in principle to a request by the Association of Southeast Asian Nations for a code of conduct in the disputed South China Sea, even though China initially opposed a code.
"China has contributed to global economic activity, and it has added to global economic growth," says Rodolfo Severino, former secretary-general of the regional group, known as Asean. "China also plays the role of regional locomotive, especially while Japan remains stagnant."
In Japan, the flood of cheap products from China has some industries up in arms, even as Tokyo itself draws flak for curbing the value of the Japanese currency to help its exports be more competitive. A 2002 book called "The Day When China Overtakes Japan" fretted that Japan's trade surplus might disappear by 2004. "It's hard for exports to grow because of the increase in competing products from China and other parts of Asia," lamented the book's introduction.
But while Japan's farmers and textile makers complain that Chinese competition is driving them out of business, car makers and clothing retailers say their operations in China are their most promising areas of growth. Increasingly, Japan's China-bashers are being drowned out by the voices of those with China fever.
Economists note that while Chinese exports to Japan are growing, much of the trade is driven by Japanese companies that have shifted some production to China to cut costs and boost profits. Takamoto Suzuki, an economist at the UFJ Institute, a think tank in Tokyo, estimates that 60% of trade between Japan and China is conducted by Japanese companies.
In addition, economists say, the two countries have different industrial strengths: China provides inexpensive labor and its products compete largely on price; Japan boasts leading-edge technology. By comparing the value of exports to the U.S. within various product categories, such as TV sets, Japan and China compete in just 16% of product categories, says C.H. Kwan, an economist at the Research Institute of Economy, Trade and Industry, a government-affiliated think tank in Tokyo.
In Europe -- with the exception of Italy -- politicians and companies have also responded coolly to the rise of China as the world's manufacturing floor.
European financial officials backed the U.S. in calling for Asian economies to allow their currencies to move more freely against the dollar. Yet the Europeans have emphasized caution, stressing the frailty of the Chinese financial sector and other possible harmful effects of a quick shift to a floating yuan. "The discussion has been very misleading in talking about free floating, which is out of the question, given all these other dimensions," Caio Koch-Weser, the deputy German finance minister, said recently.
The European economy is still largely skewed toward capital goods, such as machinery and cars, rather than goods like consumer electronics, where China is becoming more competitive. In addition, a stronger euro against the dollar and other currencies isn't seen as all bad, since it eases inflation pressure. Perhaps most importantly, unlike the U.S., Europe isn't gearing up for any national elections. With unemployment stubbornly high in the U.S., "the Bush team wants to at least look like it's doing something," said Maxine Koster, a global economist with Credit Suisse First Boston in London.
Still, concern about China clearly has risen in Europe in recent months. The EU's largest trade deficit with any single partner is now with China, at $52 billion.
For countries like Italy, whose economy is highly dependent on textiles, figures like that are beginning to have an effect. The Italian luxury-goods sector, which still mostly relies on Italian-made textiles, has been squeezed by China's emergence in recent years. Como, a city famous for its silks, has lost about 50% of its silk-tie production during the past five years, according to the Como Industrial Association, which blames the new competition.
Some countries are less ambivalent. Mexico this year is expected to lose its position to China as the No. 2 exporter to the U.S. economy. Grupo Televisa SA, the country's biggest media firm, last week broadcast a series on China's threat to Mexico. And the host of the country's widely watched morning chat program -- a clown named Brozo -- told his audience: "There is something wrong when it costs less to move a product from Tijuana to China and back to Houston than it does to simply send it from Tijuana to Houston."
But as some U.S. politicians continue to hammer away at China, they may find other countries less sympathetic.
"The U.S. is losing jobs because American and European companies are chasing the most efficient means of production, the very process that the U.S. is always trying to ram down the throats of developing countries," says Malaysia's Ms. Tan. "That is a structural change and those jobs are gone forever. ... Washington ought to practice what it preaches and tell Americans that truth, instead of looking for scapegoats."
---- Todd Zaun and Sebastian Moffett in Tokyo, Federica Bianchi in Milan, Karby Leggett in Shanghai and David Luhnow in Mexico City contributed. |
