CHINA'S TRADE PARTNERS AND TRADE WITH JAPAN, EUROPE AND BRAZIL

CHINA’S TRADING PARTNERS

As of 2009,China was the No.1 trading partner of six of the G-20 nations: 1) Japan (20 percent of bilateral trade---imports to exports); 2) South Korea (20 percent of bilateral trade); 3) Australia (19.5 percent of bilateral trade); 4) Russia (8 percent of bilateral trade); 5) South Africa (14 percent of bilateral trade); and India (9 percent of bilateral trade). In addition China was the No.2 trading partner of five other of the G-20 nations: 1) the United States (14 percent of bilateral trade); 2) Canada (7 percent of bilateral trade); 3) Indonesia (12 percent of bilateral trade); 4) Mexico (7 percent of bilateral trade); and 5) Brazil (12 percent of bilateral trade). In the year 2000, China was the No. 1 or No. 2 trading partner in only one of these countries Japan (No.2).

Trade with Africa and Latin American increased sixfold between 2001 and 2008. Trade between Africa and China soared ten-fold between 2001 and 2009, when it reached $100 billion. See Africa, International, Government

In October 2010, China said it was interested in joining international negotiations on a transpacific agreement on free trade and investment called the Trans-pacific Partner (TPP) agreement. In June 2010, Australia and China signed trade pacts worth $8.8 billion, with seven of the 10 agreements involving energy or resources. China signed is first free trade agreement with a developed country---New Zealand---in April 2008

Bilateral trade between China and India was around $20 billion in 2006. This is up from almost nothing in the 1980s and a $1 billion in 1991. The two countries hope to double that figure to $40 billion by 2010. Most of the trade is the form of Chinese exports to India. India’s high-tech companies are flocking to China to take advantages of opportunities for applied research.

China is South Korea’s largest export market and the largest destination of direct investment. In the 1990s nearly half of South Korea's investment went into China.

China imports large amounts of foreign oil. See Oil.

Chinese Trade with Asia

Asia’s exports to China started booming after China joined the World Trade Organization in 2002, as the country demanded components and machinery it couldn’t make. That made the rest of Asia a crucial part of China’s supply chain, but also made it more dependent on Chinese export demand.

How much is hard to tell. China’s exports of goods made from imported materials are equivalent to 40 percent of its imports. Assuming generously that half of the value of those exports has been added by Chinese workers, it means up to one-fifth of Asia’s exports to China are destined for global markets. Then there’s the export-related stuff that goes into China but doesn’t come out, like equipment and machinery. Machinery and transport equipment, for example, accounts for roughly 40 percent of Korea’s exports to China.

The hope has been that China will consume an increasing share of its Asian imports at home. But domestic demand is unlikely to stand up to an export slowdown. Exports as a portion of gross domestic product have been falling since 2006, but only back to where they were in 2003. And even a small change in exports can influence consumption and investment habits. During the 2008 crisis, China’s exports fell 25 percent, and its imports from Asia halved. Then, gross exports were equivalent to 35 percent of China’s G.D.P. They account for 29 percent now. It’s hard to see how Asian imports will hold up if China’s export engine stalls again.

In 2011 China’s manufacturing engine was sputtering, which was bad news for Asian exporters like Japan and South Korea. They’re counting on China to offset slowing demand from the United States and Europe. But much of what China imports goes into making its own exports. And even what bona fide domestic demand is left is likely to be affected by a trade slowdown.

China's Trade with Japan

In August 2008, Japanese exports to China surpassed those to the United States for the first time since World War II. China surpassed the United States as Japan’s top trade partner in terms of both imports and exports in 2009. Although exports to China shrunk 20.9 percent to ¥10.24 trillion in 2009 they shrunk even more to the United States: 38.5 percent to ¥8.74 trillion.

China has been Japan’s No. 1 trade partner since 2004 when China replaced the United States as Japan’s No. 1 export market. In 2004, China accounted for 20.3 percent of Japan’s total trade, compared with 18.6 percent share for the United States. The total value of Japan-China trade in 2004 was $213 billion. Japan is China’s third largest trade partner. China’s strong growth has helped pull Japan outs its decade-long recession.

Japan provides China with technology and capital, while China provides Japan with low-cost production and an export platform. Growth in Japan has been driven by surging economic growth on China, increased demand for Japanese products and, even more, by the use of China as a production base for Japanese companies for cars, computers, electronic gadgets and other items.

Bilateral trade between China and Japan was $266.4billion in 2008, a 2.5 percent increase from the previous year. In fiscal 2006-2007, trade between China and Japan totaled ¥25.4 trillion in total trade compared ro ¥25.1 trillion between China and the United States. Exports to China from Japan soared to a record ¥11.3 trillion and imports increased 13 percent to a record ¥14.1 trillion.

China, Japan and South Korea have formed a $120 billion reserve pool of foreign currency to help countries in Asia in the event of an economic crisis or run of local currencies. In January 2007, the leaders of Japan, China and South Korea agreed to hammer out a free trade agreement in the near future.

Japanese exports to China rose 85.6 percent between 2001 and 2003. Japanese mports from China rose 73.3 percent between 2001 and 2003.In 2003, China exported $59.4 billion worth of goods to Japan, compared to $30.9 billion in 1996. Exports to China in 2005 accounted for 13 percent of all exports. Only the United States had a higher share with 22 percent. Imports from China rose 73.3 percent between 2001 and 2003 Exports to China rose 85.6 percent during the same period.

Japanese Businesses in China

There are 20,000 Japanese companies operating in China (2006). Japanese companies have their largest presence in Shanghai. They are the No. 1 foreign contingent in Shanghai. Between 2001 and 2005, 5,664 Japanese businesses were set up in Shanghai. Seventy percent of them are manufacturers. 40,000 of the 90,000 residential foreigners in Shanghai are Japanese. There are lots of Japanese restaurants and schools to meet their needs.

China is the No.1 destination for Japanese foreign investment. Japanese have invested $65 billion in China since the 1980s. Japanese firms employ more than 1 million Chinese. Conditions at some of the factories that make stuff for Japanese companies are pretty bad.

Japan supplies China with steel, chips, and electronic items. Among the Japanese products that are available in China are Honda, Nissan and Toyota cars, Asahi beer, Sony televisions and Casio, Sharp and Kyocera electronics. According to a 1995 Gallup poll, six of the top the foreign brads identified by consumers were Japanese. The four best known brands---Hitachi, Toshiba, Toyota and Panasonic---also had the highest product quality ratings.

Japan has been more reluctant transfer technology of China than the U.S. because it is worried about China as a potential competitor in the future.

Japan and China have had their share of trade battles. In 2001, after conservative farming interests in Japan persuaded the government there to restrict imports of leeks, mushrooms and tatami mat rushes, China responded with high duties on Japanese cars, computers and cell phones. The dispute took nine months to work out.

Dalien and Trade with Japan

From 1905 to the end of World War II, Dalien was the center of Japanese commerce in China. Claimed from Russia after the Russo-Japanese War, it was once home to 300,000 Japanese. The courthouse is a replica of an auditorium at Tokyo University and Dalian train station is a copy of Ueno Station in Tokyo.

Dalian is once again a center of Japanese commerce. Passengers arriving at the airports are welcomed by a huge "Big Japan" sign, restaurants serve sushi and sea urchins and golf clubs charge $70,000 membership fees. There are also bath houses and upscale karaokes.

Some 30 percent of Japanese investment flows into Dalian. An estimated 70 percent of all the goods made for export in the city are made by Japanese companies or joint ventures.

China's Trade with Europe

The EU is China’s largest trade partner. In 2007, the European Union overtook the United States as China’s largest trading partner. Trade between the countries of the European Union and China doubled between 2000 and 2005 and has been most described the European Commission’s “the single most important challenge for EU trade policy.” The EU’s trade deficit with China was $247.4 billion in 2007.

The 27-member European Union is China's biggest export market. But foreign direct investment (FDI) has badly lagged, totaling $8 billion by the EU's reckoning or $12 billion on China's count - less than 0.2 percent of total FDI in the EU, according to Rhodium. The firm has kept its own tally since 2003, but its total of $15 billion through mid-2011, though greater than the official data, is still small. [Source: Alan Wheatley, Reuters, December 26, 2011]

China’s trade surplus with the European Union rose 31 percent in 2006 to $91.7 billion, compare to $70.1 billion a year earlier. In 2006, exports to the EU, rose 27 percent to $182 billion while imports from the EU rose 23 percent to $90.2 billion.

The EU was China’s top trading partner in 2006. China has to worry about powerful European trade unions who are not keen about their members losing their jobs because of Chinese exports.

Germany is China’s largest trading partner in Europe. Germany and China had $63.2 billion in trade between them in 2005, accounting for one third of the trade volume between China and the European Union.

See Airbus, Transportation

In 2005, the European Union accused the shoe industry of dumping and warned that it might report China to the WTO on the issue and impose tariffs on Chinese-made sport shoes made by Nike, Adidas, Puma and Reebok. The sports shoe industry in Europe is worth $48 billion a year. Dumping is defined by the E.U. as producing goods below costs in such a way as to cause damage to a substantial part of an industry.

In October 2006, the EU imposed a 16.5 percent duty on all leather shoe imports for five years. It also urged China to open its economy to foreign investment as apart of a “two-way street” between the trading powers.

In October 2010, during a two-day visit to Greece, Chinese Premier Wen Jiabao announced that China was willing to buy Greek debt at a time when Greece was suffering severe economic problems and was on the verge of bankruptcy. Wen said, “China will undertake a great effort to support euro zone countries and Greece to overcome the crisis.”

Textile Quota Crisis with the European Union

In June 2005, the European Union introduced quotas on textile imports from China. The Chinese and European retailers and traders objected. The quotas were enacted after worldwide restrictions on textile exports form China were lifted in January 2005 and textile exports flooded Europe. The textile imports were 130 percent higher in the first six months over the same period a year before, reaching $8.7 billion by the end of June. The quotas, which extended through 2007, were enacted after pleas by European garment manufacturers.

The quota debate came to crisis with the so-called “bra wars” in which 75 million sweaters, bras, T-shorts and other items were blocked at European ports because the quotas had already been filled. European retailers were put in a bind because clothes they expected to be in the shops for their fall sales drives were not there.

On one side were China and countries such as Germany and the Scandinavian countries that have large retail markets and wanted the good released. On the other side were countries with large textile producers such as France, Italy and Spain that wanted to protect local industries and jobs.

Finally in September 2005 an agreement was hammered out that allowed about half the stockpiled items to be released to their destinations with no penalty and the other half to be released and count towards the quota for the following year (2006).

In October 2007, the EU and China announced they would monitor textile trade until the end of 2008 to avoid trade tensions.

WTO Largely Backs China over EU in Shoe Dumping Case

In October 2011, Reuters reported: A World Trade Organisation panel largely backed China in a complaint about the European Union's decision to impose anti-dumping tariffs on imports of Chinese footwear. In a ruling, the panel told the European Union to bring its anti-dumping regulations into conformity with WTO rules and said the bloc had acted inconsistently with WTO anti-dumping rules. [Source: Reuters, October 29, 2011]

But it said there was no need for the EU to change the disputed tariffs because they had already expired. It also rejected the bulk of China's claims on behalf of individual producers and some of its more specific complaints. The case was the second brought by China against the EU at the WTO. In July, China won a victory after the EU accused it of flooding the European market with unfairly cheap nuts and bolts.

China launched the shoe case in February last year after the EU decided to extend the duties on shoes from China and Vietnam, after shoemakers in Spain and Italy complained they could not compete against the cheap imports. But the duties also faced opposition within Europe, since they forced consumers to pay more for their shoes. The Federation of the European Sporting Goods Industry, whose members include companies such as Adidas, Puma and Nike, launched a legal case against the European Union complaining they had suffered losses as a result.

China Investment Wave Unlikely to Swamp EU

In December 2011, Reuters reported: The sign in a boutique selling glass hand-crafted on the Venetian island of Murano betrays an uncertain grasp of English. But the owner is very sure who is to blame for the tough times confronting the 700-year-old local glassmaking industry. "Everything in this shop is not made in China," it proclaims. A few doors away, imported Murano lookalikes sell for much less. To the untrained eye, they appear identical.[Source: Alan Wheatley, Reuters, December 26, 2011]

With Europe drowning in debt and flirting with recession, China's influence can only rise further. Euro zone governments would love Beijing to plough more of its $3.2 trillion in foreign-exchange reserves into their bonds. China is also likely to chip in with a loan to the International Monetary Fund to provide a financing backstop in case Italy and Spain are shut out of the bond markets.

The week's $3.5 billion acquisition by China Three Gorges Corp of the Portuguese government's stake in utility EDP is also a sign of things to come. Financiers turn instinctively to fast-growing China as they try to flush out buyers for assets that are going on the block as European governments, banks and companies pay down debt.

But, despite Chinese leaders' expressing interest in diversifying the country's overseas asset base away from government paper, analysts do not expect a sea change in China's traditionally cautious approach to expanding in Western markets. Africa and Asia are likely to remain China's top targets for now. "There are going to be opportunities, but we're not going to see China buying up Europe," said Thilo Hanemann, research director at the Rhodium Group, an investment advisory and strategic planning firm in New York.

There are many reasons for the wariness. Lengthy delays in obtaining the approval of regulators in Beijing put Chinese companies at a disadvantage in mergers and acquisitions when the seller wants a quick deal. Companies lack the management skills to integrate overseas acquisitions. And, perhaps most importantly, prospects are much brighter at home than they are in Europe. "If you compare the rates of growth in China and in Europe, are you sensible buying into a brand that's seen its best years of growth” said Edward Radcliffe, a partner in Shanghai with Vermillion, an M&A advisory boutique that focuses on cross-border China deals.

The failure of Chinese firms to buy Saab, the Swedish car maker that was declared bankrupt in 2011, week, was a telling example of the difficulties facing Chinese investors, Hanemann said. But the picture is not black and white. After all, Volvo, another Swedish car maker, was successfully acquired by a Chinese rival from Ford Motor Co in 2010.

Christine Lambert-Goue, managing director in Beijing at Invest Securities China, said companies were not looking mainly for outright acquisitions but for brands, patents and technology that would bolster their position at home. "Companies are only ready to pay for assets from Europe that will enable them to gain market share in China," she said.

Investment in Europe will take off eventually, but a deteriorating political climate represents an obstacle in the short term, said Jonathan Holslag of the Brussels Institute of Contemporary China Studies. The EU, like the United States, is talking tough about Chinese "state capitalism" and is crafting a more assertive trade policy to counter what it sees as a playing field tilted against foreign companies. "The European Union is disappointed with the reluctance of Beijing to open its economy further, whereas Beijing complains about Europe being too reluctant to share its knowledge or to allow Chinese investors to expand their presence in important sectors like infrastructure," Holslag said.

China's Trade with Russia

Trade between Russia and China rose 44 percent to more than $48 billion in 2007. Russian’s sale of oil and gas increased 12 percent to $13.7 billion while China’s exports increased 80 percent to $8.48 billion. Russia wants to sell China more aircraft, military equipment and nuclear technology. Much of teh trade between Russia and China is carried by the Trans-Siberian Railroad.

Major importers of Russian goods: Germany (11 percent), Britain (8.7 percent), the U.S. (7.9 percent), China (6.6 percent), Italy (6.4 percent), Japan (4.1 percent), the Netherlands (3.3 percent), and Switzerland (3.0 percent).

Major Russian exporters to Russia: Germany (17.5 percent), the U.S. (8.3 percent), the Netherlands (6.2 percent), Finland (5.6 percent), Italy (4.5 percent), Japan (4.5 percent), France (4.0 percent) and China (3.9 percent).

Traders traveling between Siberia and northeast China bring in deer antlers, pornography and puppies from Russia and exchange them for consumer goods, clothes, coffee, cosmetics and other items.

See Oil, Natural Gas, Pipelines.

Russia is China main weapons supplier. See Military

China’s Trade with Latin America Raises Eyebrows

Jordi Zamora of AFP reported: “China’s exports from Latin America have been surging, contributing to better growth for the latter. However, its insistance on buying unprocessed raw materials may be hampering development in Latin American economies, some experts say, also emphasizing the dangers of overdependence on the Asian giant. Soy from Argentina, copper from Chile, iron ore from Brazil: China’s seemingly insatiable appetite for Latin America’s raw materials is credited with fueling blistering economic growth for both. [Source: Jordi Zamora, Agence France-Presse, September 4, 2011]

China also has a $8.5 billion deal with Argentina to improve its railway infrastructure in return for Argentina buying Chinese -made trains. In Ecuador the Chinese are financing a $1 billion hydroelectric dam. Schools in Mexico are starting to teach Mandarin and Chinese are making a number of investments there as China extends its reach into Latin America.

China’s rise in bilateral trade with Latin America is the greatest of any region in the world---an 18-fold increase over the past decade, mostly due to exports of raw materials from the region. But experts are warning the increasingly closely tethered economic ties to China may not be entirely to Latin America’s benefit, and may even hamper its long-term aspirations of becoming a major exporter of manufactured goods.

Part of the reason for this is China’s insistence on buying almost exclusively unprocessed raw materials from the region while refusing to purchase more sophisticated “value added” exports. “It’s essentially one commodity per country and this is quite remarkable,” said Mauricio Cardenas, director of the Latin America program for the Brookings Institution in Washington.

There are also risks, like one flagged recently by analysts from Nomura, which raised concern that the economic boom in countries like Brazil stems from overdependence on exports to China. “We think Brazil’s much vaunted “new middle class” is a direct result of Chinese commodity demand,” Nomura said in a recent analysis. Another economist who specializes in economies of the region put it even more bluntly, pointing out that when it comes to export of value-added goods from Latin America, China must be viewed more as a fierce competitor than likely market.

“I don’t think that with China, India, and the rest of Asia in the game, the region stands any chance of becoming a major exporter of manufacturing goods,” said Mauricio Mesquita, senior economist at the Inter American Development Bank. “I think this window is closed with a very few exceptions,” he said. Experts also raise concern that resources that Latin America has been exporting to China could start running out by mid-decade.

The United States has been watching China’s growing economic prowess in Latin America with some concern, especially after China last year supplanted the U.S. as the top trading partner with several South American nations. U.S. exports to Latin America have dropped from 55 percent of the region’s total imports in 2000 to 32 percent of the region’s imports in 2009, according to United Nations figures.

Chinese Trade with Brazil

China is now Brazil’s largest trading partner, surpassing the United States for the first time in 2009. It mainly sends cheap goods to Brazil in return for minerals and farm products. Brazilian manufacturers who are undercut by cheap Chinese exports are not happy with the arrangement. In April 2011, Brazil’s President Dilma Rousseff raised concerns about her country’s trade imbalance with China but her sour tone was quickly turned around when China showered Brazil with billions of dollars in trade and business deals.

In 2010 China was the largest investor in Brazil, pumping in some $30 billion. For China, Brazil is an importance source of raw materials - oil, iron ore and soybeans account for 80 percent of Chinese imports and 90 percent of its investments in the largest Latin American economy. [Source: Jordi Zamora, Agence France-Presse, September 4, 2011]

The Chinese are building steel plants, car factories and telecommunications and electricity infrastructure there. Chinese grain company are leasing huge tracts of land and signing contacts for huge purchases. Among the Chinese projects in Brazil are a huge port facility in Porto do Acu, 300 kilometers north of Rio de Janeiro, with a three-kilometer-long pier, which will be used to feed massive iron-ore carriers and oil tankers bound for China.

Brazilian imports from China “largely cheap manufactured goods---jumped 12-fold between 2000 and 2009 and Brazilian exports to China---largely agricultural products---went up 18 times in the same period. China is helping Brazil by creating markets and driving up prices for agricultural products such as soy beans but is hurting the Brazilian manufacturing sector by producing goods that are cheaper than those made bu Brazilian manufacturers.

Effects of China’s Trade with Brazil

But the export of manufactured products, which most economists say is the cornerstone of healthy economic development for emerging countries, is beginning to stagnate. Companies in the region are themselves to blame in part for making the mistake of many other developed and industrializing economies in sending many of its manufacturing jobs in China, as Brazil did in the case of giant aircraft manufacturer Embraer. [Source: Jordi Zamora, Agence France-Presse, September 4, 2011]

Over the years, the manufacturing sector in Brazil has declined by 3 percent as a share of the country’s gross national product, or GNP, while other countries in the region, such as Colombia, have seen a 2 percent drop. Experts said it is unlikely that there will be a reversal in that trendline anytime soon. “The long-term trend for Brazilian employment is not manufacturing. The only place is services,” said Gary Hufbauer of the Peterson Institute for International Economics. A report by Mauricio Cardenas his colleague Adriana Kluger for Brookings reached the same conclusion. “The region has to be prepared to find alternative sources of trade and growth,” Cardenas and Kluger wrote.

Trade Disputes Involving China

China is increasingly taking center stage in a rapidly growing list of trade quarrels. In July 2011 The Economist reported: “The China was a party to only two of the 93 trade disputes that were taken to the WTO between its accession and the end of 2005. But in the five years to the end of 2010, it was involved in 26 of the 84 cases filed at the forum.”[Source: The Economist, July 7, 2011]

In November 2009, the United States, Mexico and European Union asked the WTO to settle a dispute with China over export restrictions of raw materials used to make steel, aluminum and chemical products, arguing that China’s restrictions drove up global prices and gave Chinese companies an unfair advantage over foreign rivals. The raw materials in question were bauxite, coke, fluorspar, silicon carbide, zinc, magnesium, manganese, silicon metal and yellow phosphorous---all of which China is a leading producer.

In July 2011 the WTO’s dispute-settlement body ruled against China in the case. The plaintiffs argued that China’s policies gave domestic firms that use these commodities an unfair competitive advantage, while also restricting world supply of these inputs and causing their prices to soar. China said its restrictions were motivated by its desire to conserve the world’s limited supply of these materials and to protect the environment from the pollution caused by their extraction. The problem with this line of argument, as the WTO panel noted, was that although China restricted the export of these commodities, it had done nothing to reduce their actual production.

China expressed “regret” at the WTO’s ruling. Jeffrey Schott of the Peterson Institute for International Economics, a think-tank in Washington, DC, expects “several more big cases against China soon”. But the significance of this judgment goes beyond China. Many countries banned some food exports during the food-price spike of 2008. A renewed period of buoyant commodity prices and demand could easily tempt more governments to emulate China’s restrictions on exports of raw materials. The WTO’s judgment may dissuade at least some countries from doing so. And given the rotten state of the Doha round of trade talks, a show of teeth in defence of a rules-based trading system is more useful than ever.

See United States Trade

In June 2010, the EU began investigating whether Chinese ceramic tile manufacturers engaged in dumping in the European market.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Yomiuri Shimbun, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated April 2012


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