Park Geun-hye to Visit China with 156 Economic Envoys, History’s Largest Scale

South Korean presidential office Cheong Wa Dae Chief Secretary of the Economic Anzhong Fan, on August 31st, said at a press conference, President Park Geun-hye would head the history’s largest economic envoys to China, it is expected to achieve fruitful results in the economic field.

It is understood, the economic envoys led by Park Geun-hye’s are from the 128 enterprises and consist of 156 member, which is the largest scale in history. The economic envoys will hold the China-ROK business forum together with the local enterprises, and will carry out one-to-one business meeting activities.

Anzhong Fan also said that China and South Korea in 2014 signed a free trade agreement (FTA), the two countries are currently in the approval stage, Park Geun-hye's visit is expected to promote China-ROK FTA early entry into force. During the talks, the leaders of China and South Korea may discuss the issues about FTA effectiveness.

Park Geun-hye will visit China on September 2-4, and attend the "Sino-Japanese War and the World Anti-Fascist War 70th anniversary" celebration held in Beijing. On September 4th, she will lead the economy envoys to attend the China-ROK Business Forum. (www.chinainout.com)

To Evaluate China’s Impact on World Economy, Ignore GDP and Start with Trade

Stock market volatility and a small currency devaluation have in the past few months caused the financial community to take note of Chinese economic weakness. A natural question is what effect this weakness will have on the rest of the world. The answer is very little, with most important reason being that China has not truly contributed to the global economy for at least four years.

The idea that Chinese weakness threatens the world economy melds a number of misconceptions. The first is that the weakness is a new phenomenon. It was actually the initial stock market climb and a rising renminbi that were somewhat surprising; the ensuring partial corrections were late in coming, if anything.

China’s economy began weakening no later than 2008, and probably before. A temporary upswing starting in late 2009 and continuing into 2010 was due to an unsustainable, unwise, and unprecedented explosion in debt. From 2011 on, ups and downs in the global economy have not been due to ups and downs in China – the trend in Chinese performance has been invariably down.

To see this, it’s necessary to be more precise about the term “economy.” Economic growth can be understood as growth in inflation-adjusted (real) personal income. China has long contributed to global growth in real personal income by dampening inflation with low-cost production. A decade ago, this was an important role because inflation could have been considerably higher without low-cost Chinese production.

Now, however, the world faces deflationary pressure and China’s deflationary contribution is extraneous, even excessive. Further, it is hard to see how China can be contributing on a net basis to higher nominal incomes overseas given that it remains a major production competitor and not presently capable of driving commodity prices higher.

Of course, the standard way of discussing the economy is to use gross domestic product (GDP). Most commentators use GDP and “the economy” interchangeably. This is a clear and misleading error. The economy is not tiny in the middle of January, as GDP is. GDP per person has no value – just try to spend it.

GDP does make China look very important. The IMF routinely ranks China as the leading contributor to global GDP growth. At best, this is a very strange notion of a contributor. China raises the global GDP growth average, if its official statistics are accurate. If Beijing were ever to acknowledge that GDP growth was, say, four percent instead of seven, average global GDP growth would fall.

To put it succinctly: who cares? In a situation wher a Chinese GDP growth dro lowers the world average, the rest of the world has not changed. This is not a global recession in any meaningful sense.

More important, China does not contribute to the rest of the world’s GDP. It detracts from it, even when China is in fact contributing to the global economy. This is because a trade surplus (net exports) is counted as a positive in GDP and a deficit is counted as a negative. Treating trade in this way does not make much sense but those using GDP to heighten China’s importance to the world are stuck with its definition.

China’s official trade surplus – its huge goods surplus and sizable services deficit combined –was roughly $180bn last year. This constitutes $180bn subtracted from the rest of the world’s GDP. China has been running large trade surpluses for a decade, each and every year subtracting from the rest of the world’s GDP, not contributing.

Slower Chinese GDP growth would, in itself, mean nothing at all to anyone outside the country. What matters to GDP is the size of the trade surplus. If it rises, then rest-of-world GDP falls by that amount (everything else constant). In this case, the trade surplus is also a reasonable representative for China’s true impact on the world. A rising surplus says China is pushing down prices around, intensifying existing deflation.

It is often the case that GDP does not matter and it is typically the case that China’s claimed GDP does not matter. To evaluate China’s impact on the world economy, ignore GDP and start with trade. (www.chinainout.com)

World Trade Suffers Largest Contraction Since 2008 Crisis

World trade recorded its largest contraction since the 2008 global financial crisis in the first half of this year, according to figures that will feed concerns over the global economy and add fuel to a debate over whether globalisation has peaked.

The volume of global trade fell 0.5 per cent in the three months to June, the Netherlands Bureau for Economic Policy Analysis, keepers of the World Trade Monitor, said yesterday. Economists there also revised down their result for the first quarter of the year to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

Global trade actually rebounded by 2 per cent in the month of June, according to the World Trade Monitor, but its authors warned that the monthly numbers were volatile and that the more revealing pattern lay in the longer-term figures. 

Those numbers built on what has been a grim pattern for global trade in recent years and the unwinding of a decades-old rule that saw trade reliably grow at twice the rate of the global economy as a result of what some have called an era of hyperglobalisation.

In the three months to the end of June global trade grew just 1.1 per cent from the same quarter of 2014, according to the new figures. The International Monetary Fund expects the global economy to grow 3.5 per cent this year.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organisation, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to reduce that estimate.
 
Much of the slowdown in global trade this year has been caused by a faltering recovery in Europe as well as a slowing economy in China, Mr Koopman said. 

The global economy’s “growth engine” had been operating as if it had a mechanical fault for some time with “good growth in some countries offset by weak growth in others”. 

But there was also clearly a structural shift happening in the global economy, he said, and that meant slowing global trade was likely to endure for some time.

The attempted shift in China from an export-led economy to one that was more driven by domestic consumption had structural implications for global trade, Mr Koopman said. So too did the changing energy dynamics in the US, which is becoming a net exporter of energy, and a pattern of manufacturers deciding to shorten their global supply chains and bring production closer to home as part of a “nearshoring” and even “reshoring” movement.

“There’s an adjustment going on in the global economy and trade is a place wher that adjustment becomes pretty visible,” Mr Koopman said.

The slowdown in global trade in recent years has led some to proclaim that globalisation has peaked with technological innovations like 3D printing already creating further disruptions.

However, while it may have peaked there are no signs yet that globalisation has gone into reverse, Mr Koopman said. While growth in trade has slowed to “mimic global GDP” it remained stable as a component of the global economy, with merchandise exports accounting for a steady third of global output when measured in constant 2005 prices. 
(www.chinainout.com)

State Department Regulates Imports and Exports to Reduce Burdens on Foreign Trade Enterprises

Following the "Opinions on Promoting the steady growth of imports and exports" issued on July 24, the State Council executive meeting made specific arrangements on the "cleaning up and regulating the import and export fees, alleviating enterprise development burden" on August 26.

This executive meeting of the State Council has done a clear requirement on lowering part of imports and exports fee, unifying trade port charging and prohibiting mandatory fees.

This year, China's foreign trade is under greater downward pressure. In the first seven months, China's export value reached 13.63 trillion yuan, down 7.3%. Among them, exports 7.75 trillion yuan, a slight decrease of 0.9%; imports 5.88 trillion yuan, down 14.6%; trade surplus 1.87 trillion yuan, expanding 1 times.

Although the above trade data is not ideal, there have been some signs of stabilization in China’s foreign trade. Our government takes efforts to facilitate trade and to create a good environment for foreign trade, China's foreign trade market diversification, imports & Exports regional distribution and trading conditions have been optimized and improved to some degree. However, the import and export enterprises still have heavier burdens, sorts of fees on imports and exports are still prevalent, it’s urgent to clear and normalize charges in imports and exports.

Reporters found at the Shandong ports that only the "port charges", contains the port security fee, document making fee, port charges, seal fees, documentation fees and warehouse information. Moreover, different maritime ports have different compositions and standards of fees.

"On the basis of the original cooperation with CIQ - 'one declaration, one inspection and one release', we will cancel recurring charges and cross-charging as the entry point, further promote the 'information exchange, mutual recognition of regulatory, law enforcement mutual aid', further improve regulatory efficiency, simplify customs procedures, and improve trade facilitation." Guangdong Panyu Customs Deputy Commissioner Taoyong said. (www.chinainout.com)

Can US Consumer Internet Company Make It Big in China?

Can a US consumer internet company ever make it big in China? That question, which has longdogged Silicon Valley, is starting to take on the urgency of a strategic imperative.

It isn’t just that China is a juicy target in its own right. There is a risk to ceding ground toemerging Chinese rivals in their booming home market at a time when those companies aretaking their first, tentative steps towards going global. US companies, themselvesaccustomed to using dominance of a massive domestic market as a launch pad to take onthe world, should understand what’s at stake.

Uber and Airbnb, the yin and yang of the sharing economy, are the latest to try their luck. Theride-hailing app that likes to batter down doors is in a pitched battle with a Chinese localcompetitor backed by two of those aspiring global players, Tencent and Alibaba. Airbnb, whichprefers a less confrontational approach, this week lined upsome influential allies as it seeksits own way in.

“Localisation” figures prominently in both companies’ game plans. Having the rightmanagement and local backers and supporters certainly helps. Knowing when to adapt asuccessful global formula will also be key. The failure in China of eBay, which was outflankedby Alibaba’s free listings for buyers and its introduction of a payment service to reduce fraudrisks, is still a case study in how an adaptable local rival can come out on top.

Uber and Airbnb at least have one advantage over companies like Google and Yahoo, whichfailed before them: they aren’t directly involved in the online media and communicationsbusinesses, making them less obviously targets of an authoritarian state.

But any successful internet business is to some extent a challenge to the status quo. China’slatest gesture towards online control — to station police officers physically inside internetcompanies — is an indication of the outsized influence that the successful internet companiescan have, whatever corner of the market they are in.

One reason is the amount and range of the data they hold. Amassing a giant database aboutthe movements of a nation’s citizens is a key asset. And that is likely to be only a startingpoint, as the winning platforms reach into more areas of online (and, increasingly, offline) life.

Holding the data locally might give authorities greater confidence that they can tap into it whenthey need: Uber has data centres for its operations inside China. But there is still a questionabout whether a foreign company could ever be trusted to be as compliant as a localcompetitor.

Another factor that weighs on foreign players is the way that competition tends to evolve ininternet markets. Many turn into winner-takes-all affairs, with the companies that come out ontop ending up as centres of power in their own right.

The immodest ambitions of a company like Uber highlight what is at stake. It aspires tobecome an essential part of the infrastructure of any big city, not only supplying personaltransport but also handling logistics. Local governments in China may resist foreign controlof something so essential, even if Uber promises to help solve some of the problems causedby swelling personal car ownership for China’s polluted and traffic-clogged cities.

A key question now will be how far the latest US aspirants are prepared to go to become truly“local” to overcome reservations like these. Uber’s funding arrangements for China are themost intriguing. It already has Chinese investors and is now trying to close a funding roundfor a separate Chinese unit, bringing outside investors directly into the business.

An Uber spokesperson says the company is also contemplating a local initial public offering,some time in the future, for its Chinese arm, though there are no plans for a one at themoment.

Given its huge need for capital and the particularly cut-throat nature of the Chinese taxi appwars, local investors will be useful. A structure like this would also give Uber more flexibility toadapt later — for instance by bringing in local partners or even, if forced, to reduce its stake inthe Chinese venture.

But for any US internet company, staying in the driving seat will be a priority. Yahoo’sdecision to fold its struggling Chinese business into Alibaba a decade ago turned into one ofthe most successful internet investments ever made. But now, as it gets ready to spin outwhat’s left of that minority stake, Yahoo’s diminished role is all too obvious. That is a fate itssuccessors will be working hard to avoid. (www.chinainout.com)