West Says "China, Play Fair!" x4

Oh dear, it's all China all the time now as the EU and the US hyperventilate over surging bilateral deficits with the Middle Kingdom. First up is this article on how Chinese regulations which appear to take aim at foreign goods have become a point of contention. While China has used similar industrial policies in the past, its membership in the WTO means that such policies cannot be used as widely as before without risking discrimination against foreign producers:

Few American industries have had more success in selling goods to China than makers of medical devices like X-rays, pacemakers and patient monitors. Which is why a recent Chinese decree was so troubling.

The directive, issued in June, called for burdensome new safety inspections for foreign-made medical devices — but not for those made in China. The Bush administration is crying foul.

Even more worrisome to the administration is that the directive seems part of a recent pattern in which Chinese officials issue new regulations aimed at favoring Chinese industries over foreign competitors, despite efforts by Treasury Secretary Henry M. Paulson Jr. to ease economic tensions...

"I can't tell you how many companies have come up to me — software, chemicals, autos — who say they're concerned about the trend," said a senior administration official, speaking anonymously to avoid antagonizing the Chinese. "We're very troubled about the long-term direction on some of these policies."

The American concerns are shared in Europe, which like the United States, is growing more upset about the trade deficit with China.

"What we're seeing are growing industrial interests lobbying state authorities in China and giving them preferential treatment," Peter Mandelson, the top trade envoy of the European Union, said in an interview. "The result is clear discrimination against foreign companies."

"There is clearly a growing economic nationalism in China that is leading to discrimination against foreign investors in pillar sectors of the economy," said Myron Brilliant, vice president for Asia at the United States Chamber of Commerce. "It's not only a threat to foreign investors but it also undermines China's transition to a market-based economy..."

Beyond the medical device sector were many other examples cited in a report in September by the Chamber of Commerce, drawing on the experience of businesses operating in China.

China, said the report, had become "increasingly sophisticated at developing and wielding industrial policies" in procurement, standards and antimonopoly laws to the disadvantage of foreign investors and importers. Among the examples cited are standards for wireless technology, mobile phones and mobile phone batteries that favor Chinese companies, as well as antimonopoly laws that exempt Chinese government enterprises...

The American medical device industry, according to some China experts, may be a victim of retaliation by some Chinese authorities because of complaints by the United States over unsafe and dangerous exports of Chinese products.

Second comes news that the EU's trade deficit with China through the first eight months of 2007 has gone up by 25% compared to the same period last year, partly due to the euro appreciating by 7% against the yuan:

Europe's trade deficit with China surged 25 percent in the eight months through August, giving European and U.S. officials more reason to pressure China to let its currency trade freely.

The euro-area trade gap with China widened to 70 billion euros ($102 billion) from 55.9 billion euros in the year-earlier period, the European Union's statistics office in Luxembourg said today. China's yuan has dropped 7 percent against the euro in the last year, fueling tension over the growing imbalance...

``There is a point of agreement between the Europeans, the Americans and the Japanese on the Chinese yuan,'' said Dominique Barbet, an economist at BNP Paribas in Paris. ``But even if Chinese authorities do revalue over a period of time, this will not greatly change the competitive position of China.''

China's export growth is dominated by products including electronics, toys and textiles, while euro-area economies such as Germany, the region's largest, are reliant on machinery and heavy equipment, according to Barbet, lessening competition between the economies.

Next, even Bank of England Governor Mervyn King has joined ECB President Jean-Claude Trichet and US Treasury Secretary Hank Paulson in demanding faster RMB appreciation:

Bank of England Governor Mervyn King is joining Jean-Claude Trichet and Henry Paulson to demand that China allow the yuan to strengthen at a faster pace.

King, usually reluctant to address exchange rates, used his quarterly press conference to warn that China is stoking ``great currency tensions.'' He said the issue will be discussed at this weekend's meeting of officials from the Group of 20 nations near Cape Town. Trichet, head of the European Central Bank, insisted last week that China meet its ``global responsibilities,'' and Treasury Secretary Paulson called Beijing ``out of step with the rest of the world.''

King's remarks reinforce a shift in rhetoric from officials of the largest economies as concern mounts that China isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters. While the yuan has risen about 5 percent against the dollar this year, it has dropped by the same amount against the euro.

``It's a pretty hot topic for all of them now,'' said Dominic White, an economist at ABN Amro Holding NV in London. ``Policy makers were hoping that the currency shifts needed for the rebalancing of the global economy would happen more gradually and over a longer period.''

Also coming up is the G-20 meeting in Johannesburg, South Africa where developing countries (including China) and developed countries (including the US and EU members) will discuss international financial matters. In self-interest, developing countries will likely support China's argument that a gradual appreciation is necessary not to rock China's boat and that of other developing countries:

But according to currency and policy analysts, it will be difficult to convince the rest of the G-20, which includes China as well as other rising economies like India, Brazil, South Africa and Russia.

China has a track record of firmly resisting such pressure, and some of its neighbors in Asia, especially, would suffer from a stronger yuan. Yet the weak dollar, which is hovering near an all-time low against the euro, has prompted top officials to search for the right balance of soothing public messages and private persuasion to calm markets and usher in longer-term stability so that global trade is not disrupted by volatile exchange rates...

The United States and Europe will probably make their case privately in South Africa, and virtually no one expects quick agreement there...

Perceived European-American bullying, unpopular in global trade talks and probably less so among financial officials, always strikes a sensitive nerve, said Jen, the Morgan Stanley analyst. And not everyone would necessarily welcome a stronger Chinese currency, others pointed out.

A stronger yuan would probably mean a weaker currencies in Indonesia, South Korea and Malaysia, raising the price of imported goods from China and worsening inflation at a time when prices are on the rise globally.

What's more, the rest of Asia has profited tremendously from China's rise, even as it has eyed its growing power with a touch of nervousness. The rest of the world, in short, may not be as keen as the United States and Europe to fiddle with a system that has generated unprecedented prosperity.

"They are facing a conflict of their own policy of objectives, even if they did want to see the Chinese revalue upwards," said Adam Cole, global head of foreign exchange strategy at RBC Capital Markets in London. "And I'm not sure they want that nearly as much as the G-7."