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Global economic woes mire China in trade rows

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An auto parts exhibition in Beijing in April. On Monday, US President Barack Obama announced the United States would go to the World Trade Organization to file a lawsuit alleging that China provides subsidies to companies that make automobiles and auto parts, thus harming their US competitors. [Photo/China Daily]

With the outlook for the global economy giving little cause for celebration, the manufacturing powerhouse is falling victim to rising trade protectionism.

It's a familiar turn of events: When the global economy worsens, trade disputes become more common, especially those targeting goods that are "made in China".

On Monday, US President Barack Obama announced the United States would go to the World Trade Organization to file a lawsuit alleging that China provides subsidies to companies that make automobiles and auto parts, thus harming their US competitors.

In response, the Ministry of Commerce said on Wednesday: "The US' decision was made out of political considerations. A presidential election is now going on in the US and President Obama made the announcement in Ohio, which is a state where much automobile production takes place. China is firmly opposed to the US action."

While uncertainties about Europe's debt troubles linger and the US economic troubles wield a strong influence over the current presidential campaign, a new wave of trade protectionism is being directed against China.

China has repeatedly called on the US to abide by its commitment to fight trade protectionism and to ensure that international trade is conducted in an open and fair manner.

"From cases involving solar panels to rare earths and many other sorts of products, we have already seen that trade protectionism is being used more often against China, and this will probably continue for a couple more months," said Zhang Xiangchen, director-general of the Ministry of Commerce's department of policy research.

He said "the US and the (European Union) will be the most aggressive players in the game", noting that their economies are plagued by either "high unemployment" or "huge debt burdens".

In early September, the EU announced plans to start an anti-dumping investigation into exports of Chinese solar panels, which, last year, had a value of 21 billion euros ($27.5 billion). The probe came at the request of a group of 25 producers of solar equipment and is the biggest-ever anti-dumping claim to be submitted to the bloc. The EU countries are the chief destinations of Chinese exports, making it likely that the investigation will deal a devastating blow to Chinese solar companies if it results in the imposition of greater duties.

For more than a decade, China has been a target of trade disputes, a development that has largely resulted from the quickening pace of its exports. Since 2009, a wave of trade investigations into Chinese exports, led especially by the US, has threatened to drown Chinese manufacturers.

The conditions are even worse this time. "Europe's debt troubles are spreading to more countries" at the same time that the "US presidential election campaign is drawing to a close and the world's largest economy is struggling to recover", said Tu Xinquan, deputy director of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.

The first half of this year saw the start of 40 trade remedy investigations into Chinese exports, a number up by 38 percent year-on-year.

In one of the most significant of those cases, the US, the EU and Japan submitted a complaint about China to the World Trade Organization in March, accusing it of controlling exports of rare earths, elements that are widely used in the production of smartphones, computers and other sophisticated hardware.

Previously this year, Obama had announced plans to establish an enforcement unit that would work across agencies to crack down on unfair trade practices conducted by US trade partners. Many saw that decision as being the president's attempt, as he tries to get re-elected, to show voters that he is getting tough on China.

As the presidential election enters its final months, and both major party candidates work ever harder to win votes, China is only likely to become the target of more blame.

A recent survey suggested that 62 percent of US citizens are in favor of getting tough on China, want to "use every possible means to stop (its) unfair trade practices" and are concerned that too many jobs are being "shipped" overseas.

2012 will be a difficult year for China and its exports," said Yu Miaojie, a professor at Peking University's national development research institute.

"To reduce the US' trade deficit with China, the Obama administration will try to use trade disputes to reduce its imports of certain types of goods from China," he said.

The EU has been no less aggressive. In March, the European Commission, the bloc's executive body, said it was considering imposing duties on Chinese products that it alleged were subsidized. In doing so, it said it believed European companies were hesitant to attempt to have protective measures applied, saying they feared China would retaliate.

Trade experts have said imposing the proposed duties would violate WTO rules.

Two months later, reports appeared, saying that the European Commission had also prepared a case against Huawei Technologies Co Ltd and ZTE Corp, both Chinese telecommunications equipment companies.

Economists and trade experts say such cases are becoming ever more common as the global economy weakens and unemployment rates remain high in many rich countries.

The US and the EU are China's two chief trade partners and both are struggling with economic difficulties.

The US' GDP growth slowed to 1.5 percent in the second quarter of 2012, when consumer spending dropped to its slowest pace in the year. That was the most anemic rate the country has seen since the third quarter of 2011, according to the US Commerce Department.

The country's economic growth is expected to further decelerate in the third quarter, falling to a rate of between 1 and 1.5 percent, according to economists' forecasts.

The US is also struggling with a high rate of unemployment. In June, the rate stood at 8.2 percent.

Meanwhile, the German Constitutional Court has ruled that the European Stability Mechanism, a proposed fund that would be used to bail out eurozone countries, is legal. European countries' prospects, though, have not brightened greatly.

The credit rating business Moody's Investors Service recently changed its outlook for three European countries - Germany, the Netherlands and Luxembourg - taking it from a stable rating to a negative one.

"There is increasing concern worldwide about the eurozone," said Wang Yiming, vice-president of the National Development and Reform Commission's Academy of Macroeconomic Research.

Shift to high-end

"I don't think these trade frictions will get out of control, and there is little possibility that they will turn into a trade war," said Zhang from the ministry.

Yu from Peking University agreed.

"I don't see any possibility of there being a trade war between China and its chief trade partners in the short term," he said. "But both the Chinese government and domestic companies have to take measures to prevent other possible trade investigations."

Zhang warned that the current wave of protectionism could be the start of a long-term trend.

"An increasing number of these cases appear to target advanced Chinese industries, including those involved in high technology and services, rather than older types of manufacturing," he said.

"We should be very mindful of this."

In May, in a preliminary ruling, the US Department of Commerce imposed anti-dumping tariffs equal to between 31.14 percent and 249.96 percent of the cost of solar panels imported from China. Two months before, it had imposed countervailing duties - also known as anti-subsidy duties - equal to between 2.9 percent to 4.73 percent of the cost of Chinese panels.

Then in July, the US announced it would set tariffs equal to as much as 73 percent of the cost of wind towers imported from China, contending that the country has sold the towers for less than how much it costs to produce them.

Following the US' example, the EU has submitted an anti-dumping complaint against Chinese companies.

"Industries, such as auto parts, solar energy and wind energy, are at the most risk in China of being targeted by US anti-dumping and anti-subsidy investigations," Yu said.

The trade investigations threaten to harm all of the parties that are involved in them. The EU, for instance, was the destination in 2011 of 60 percent, or $35.8 billion worth, of China's solar exports.

Trade disputes also tend to harm companies that have relationships with the companies that are directly involved and lead to job losses.

"The prevalence of trade protectionism directly reflects the state of the global economy," Tu said. "We noticed the current wave of trade investigations targeting China early in the second half of 2011, when Europe's debt troubles began to spread."

Hitting back

Faced with an increasing number of trade disputes, the Chinese government is hitting back. Two months after the US announced a preliminary ruling in the case concerning exports of Chinese solar panels, China said it was starting an investigation into US polysilicon.

The Chinese government has also said it is looking into industrial associations' requests for investigations into whether European wine makers and polysilicon exporters have benefited from unfair subsidies and have dumped their products on the Chinese market.

"The US and EU have acted irresponsibly in deciding to open probes into certain Chinese exports, such as solar products," Tu said. "China could consider taking countermeasures. The country is on the right track."

On Monday, China proposed holding a dispute settlement consultation that would give it an opportunity to talk to the US about Congress' adoption in March of a law that retroactively gave the US Commerce Department power to impose anti-dumping duties on Chinese goods.

But, "we don't recommend that the Chinese government abuse its ability to retaliate," Tu said.

Tu said China should encourage companies to cooperate with developed economies and enter more markets.

"The EU is in a leading position in equipment manufacturing, and the US is a leading technology researcher and a producer of lots of raw materials," Tu said. "But China is an important base for processing raw materials."

Chinese companies have been looking for new sources of revenue. For instance, Sky Solar Holdings Co, a Chinese solar power developer, has said it plans to invest about 12 billion yen ($154 million) to build 20 solar power stations in Japan.

Premier Wen Jiabao has said the country will take steps to encourage domestic companies to innovate more and become stronger competitors.