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Eu Blasts China Over $22.4bn Surplus

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EU blasts China over $22.4bn surplus

By Ambrose Evans-Pritchard

Last Updated: 1:38am BST 12/06/2007

Peter Mandelson, the EU trade commissioner, has accused China of abusing the world trading system, warning in the bluntest language to date that Europe will not sit idly back while its exporters are blocked from the Chinese market.

The outburst came as China's trade surplus ballooned to $22.45bn (£11.4bn) in April, an increase of 73pc over the year before. The surplus has risen almost tenfold in three years, much of it at the expense of Europe.

"Europe's trade deficit with China is growing at €15 (£10) an hour. It could reach €170bn in 2007 on the current trend," said Mr Mandelson.

"This is not tolerable. The current trade balance is artificially inflated. It is a product of politics, as well as economics. China must take concrete steps to address the problem," he told a small group of reporters yesterday, on the eve of the EU's annual trade summit with China.

"If things do not change, if EU member states are not persuaded that this partnership is a genuine two-way street and is fully based on reciprocity, the policy of dialogue and cooperation can be 'challenged'," he said, using the Brussels code-word for retaliation.

Although Germany has done well, exporting machine tools and industrial kit to China, most of Europe has made little headway. The EU exports more to Switzerland.

Anger erupted two years ago in a summer "bra war", leading to import curbs to shield Europe's battered textile industry against a surge in imports. This expires at the end of 2007.

advertisementThe disputes are now spreading to other industries, with bitter complaints by car manufacturers over methods used to lock them out of China’s lucrative business for auto parts.

Mr Mandelson said market barriers alone are costing European companies more than €20bn a year, while endemic abuse of intellectual property rights explains why 80pc of all counterfeit goods stopped at EU borders come from China.

The root of the problem is that China’s state-run credit system ignores market price signals, leading to massive over-production. EU officials believe Beijing could cap the rise of the trade surplus at any time by letting the yuan rise to its natural level, instead of holding it down through purchases of US and European bonds.

The yuan is linked to the dollar through a crawling peg, and so Europe is bearing the full brunt of currency manipulation.

China’s trade surplus with the EU is now rising much faster than the surplus with the United States, and may overtake it in absolute terms next year.

Diana Choyleva, an economist at Lombard Street Research, said China had made a grave error holding down the yuan.

“They should have let it appreciate while they were booming like crazy. China is now so big that its current account surplus is like a spinning wheel that is bound to go crashing off at some point,†she said.

The policy is clearly starting to backfire as reserve accumulation – now over $1,200bn – is causing ''blow-back’’ into the Chinese economy.

“This is making the central bank’s job of controlling liquidity harder,†said Mark Williams, an economist at Capital Economics.

“If the bank loses this battle, investment, inflation, and stock markets could all spiral to unsustainable levels,†Mr Williams continued.

Inflation is rising and asset markets are now in full-blown bubble, prompting lending curbs by the Chinese central bank.

However, the Communist party bosses are afraid that a rising yuan could lead to a flood of cheap food imports and put farmers out of business by causing a glut.

The great fear is that some 200 million peasants could migrate to the cities over the next 15 years, turning the urban areas into political powder kegs."

Source: http://www.telegraph.co.uk/money/main.jhtm.../cnchina112.xml

Edited by studdymx

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However, the Communist party bosses are afraid that a rising yuan could lead to a flood of cheap food imports and put farmers out of business by causing a glut.

The great fear is that some 200 million peasants could migrate to the cities over the next 15 years, turning the urban areas into political powder kegs."

This is all smoke and mirrors.

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I think you'll find they ******ing will! :rolleyes:

They won't sit idly back and do nothing. They'll stand up and moan and whine and do nothing whilst spending hundreds of millions of pounds on unnecessary meetings deciding the best way to go about doing nothing.

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They won't sit idly back and do nothing. They'll stand up and moan and whine and do nothing whilst spending hundreds of millions of pounds on unnecessary meetings deciding the best way to go about doing nothing.

I'm sure it will require meetings in the Bahamas and research trips to Hong Kong too.

It's funny, though: if these countries manage to pressure the Chinese into raising the Yuan, then you can wave bye-bye to 'low inflation' and hello to 10+% interest rates. Which will, of course, push down the Yuan again...

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Although Germany has done well, exporting machine tools and industrial kit to China, most of Europe has made little headway. The EU exports more to Switzerland.

And there is the truth. It's a one-way street. The only product being "exported" to China is jobs. ie. Human capital.

I expect to see the EU become more protectionist in the next 3-5 years unless China gets its currency sorted out.

Lots of manufacturing jobs have already gone, mainly in the low-tech textiles sector. The EU will not let their value-added and high-tech industries (cars, automobiles, planes, chemicals etc) go the same way. Germany, France and the UK have a lot to lose if this battle is not won.

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I expect to see the EU become more protectionist in the next 3-5 years unless China gets its currency sorted out.

Which will also push up inflation, as companies won't be able to reduce costs by outsourcing.

Either way, inflationary pressures are going up, led by China... most likely leading to stagflation across the Western world.

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"Europe's trade deficit with China is growing at €15 (£10) an hour. It could reach €170bn in 2007 on the current trend," said Mr Mandelson.

What, up from the €169.999927280bn it currently stands at?

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"Europe's trade deficit with China is growing at €15 (£10) an hour. It could reach €170bn in 2007 on the current trend," said Mr Mandelson.

Mandy wants to track down the person that worked that out and give em a slap for making him look a prat.

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I know there has been a lot of posturing over trade with China, particularly in the US and now it seems in Europe. It is a serious issue that needs to be looked at much more thoroughly and dealt with. I'm pretty much convinced that much of China's miraculous growth is indeed down to not playing by the rules of the global economic system. All this just underlines the even more important fact that the regime in place today is the exact same one that massacred thousands in Tianenmen square except now greed has been thrown into the equation. It's certainly not somewhere I would invest any money in despite so many funds doing so these days.

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I know there has been a lot of posturing over trade with China, particularly in the US and now it seems in Europe. It is a serious issue that needs to be looked at much more thoroughly and dealt with. I'm pretty much convinced that much of China's miraculous growth is indeed down to not playing by the rules of the global economic system. All this just underlines the even more important fact that the regime in place today is the exact same one that massacred thousands in Tianenmen square except now greed has been thrown into the equation. It's certainly not somewhere I would invest any money in despite so many funds doing so these days.

"The first rule of Business: There is no first rule of business!" :ph34r:

Edited by studdymx

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It's certainly not somewhere I would invest any money in despite so many funds doing so these days.

The thing is, the Chinese now have the West by the balls, because we've been shipping our factories out there and building blocks of 'executive apartments' on the land where they used to be. Even if China goes horribly wrong, we'd need decades to rebuild our manufacturing to replace them.

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"The first rule of Business: There is no first rule of business!" :ph34r:

There are actually a very large set of rules for the global economy. It is too complex and would be a mess otherwise. Countries do normally abide by these rules as it is commonly accepted that if everybody used a beggar thy neighbour policy we'd all be dragged down to the lowest common denominator. The problem is really that China plays such a large part in the global economy without being a proper market economy with the corresponding standards. The issue here is whether you should treat such a country, one that only just actually recognised internal property rights and at that only very weakly, as an equal partner. I think the EU-US need to set sanctions to force the Chinese into playing fairly like the rest of the world.

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There are actually a very large set of rules for the global economy. It is too complex and would be a mess otherwise. Countries do normally abide by these rules as it is commonly accepted that if everybody used a beggar thy neighbour policy we'd all be dragged down to the lowest common denominator. The problem is really that China plays such a large part in the global economy without being a proper market economy with the corresponding standards. The issue here is whether you should treat such a country, one that only just actually recognised internal property rights and at that only very weakly, as an equal partner. I think the EU-US need to set sanctions to force the Chinese into playing fairly like the rest of the world.

How on earth do expect China to "play fairly" when their workforce is paid a fraction of ours?

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There are actually a very large set of rules for the global economy. It is too complex and would be a mess otherwise. Countries do normally abide by these rules as it is commonly accepted that if everybody used a beggar thy neighbour policy we'd all be dragged down to the lowest common denominator. The problem is really that China plays such a large part in the global economy without being a proper market economy with the corresponding standards. The issue here is whether you should treat such a country, one that only just actually recognised internal property rights and at that only very weakly, as an equal partner. I think the EU-US need to set sanctions to force the Chinese into playing fairly like the rest of the world.

And how do you think they will react. My guess, like a spoilt child, play fair, no, share, no. Maybe throw the toys out of the pram, threaten Japan, threaten Taiwan. We shall see.

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How on earth do expect China to "play fairly" when their workforce is paid a fraction of ours?

It has nothing to do with wage rates, they are lower in nearly every country outside the EU with the obvious exceptions. It has everything to do with a BS currency and large scale pirating - we're not talking about copying a few films and games but rather the industrial scale ripping off of everything from kitchens, cars, and even commercial passenger jets ffs.

As for threatening other countries - even if they did so it would only be empty threats at best. At the end of the day China has no allies while every major power in the region - Japan, US, Russia, India - are not exactly on best terms with them. They can't really do anything and that is my point, there has been so much hysteria about China of late but the country is nowhere near as powerful economically or militarily as is portrayed.

Edited by Eriadus

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It has nothing to do with wage rates, they are lower in nearly every country outside the EU with the obvious exceptions. It has everything to do with a BS currency and large scale pirating - we're not talking about copying a few films and games but rather the industrial scale ripping off of everything from kitchens, cars, and even commercial passenger jets ffs.

You could say the EU and US brought this upon themselves. Our countries are awash with red tape. You can't move a cardboard box in work without having a crash course in Health and Safety beforehand!

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You could say the EU and US brought this upon themselves. Our countries are awash with red tape. You can't move a cardboard box in work without having a crash course in Health and Safety beforehand!

Hang on, its China that needs a crash course in health and safety for its own people.

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