Posted on 02/15/2006 5:52:55 AM PST by Paul Ross
Chinese tiger runs towards the trap
The Daily Telegraph 02/14/06
author: Ambrose Evans-Pritchard
China's trade surplus surged 46.7pc in January year-on-year as the emerging giant continued to shoot up the technology ladder, becoming a net exporter of cars for the first time.
Copying the export models of Japan and South Korea, China is now building auto production plant at breakneck speed, with plans to double its current capacity of 8.7m vehicles a year.
Analysts warn that China's industrial strategy is leading to rampant over-investment, unmatched by growth of internal demand. The mix is posing an increasing threat to the global financial system, and ruffling feathers in Washington and Brussels.
Total exports have exploded from $267 billion in 2001 to $762 billion (£437 billion) last year, raising China's world share from 4.6pc to 7.5pc. The trade surplus tripled to $102 billion in 2005.
Last year China's auto industry came from nowhere to export 173,000 cars, selling FAW, Great Wall and Chery models in the Middle East and Russia.
Chinese-built Hondas are now on sale in Germany, while Chinese producers plan to start shipping vehicles to the US market next year.
The country's airline industry is just a step behind. The state-owned China Aviation Industry Corporation is building a turbofan ERJ145 with Brazil's Embraer and is designing its own commuter aircraft.
China is now planning its own mid-range jet in a head-on challenge to Airbus and Boeing starting in 2010.
Brussels has accused Beijing of breaching world trade rules in its drive to nurture its industries, notably by compelling foreign producers to source components in China.
Washington has so far held back from deeming the communist state a predatory trading power, but pressure is mounting for sanctions to force a revaluation of the yuan. China's trade surplus with the US reached $202 billion last year, the largest ever recorded with a single country.
Two US senators proposed legislation last week to strip China of its trade privileges, alleging currency manipulation, copyright piracy, and covert trade barriers.
Morgan Stanley said China itself could be the victim of its mercantilist policies, warning that attempts to hold down the yuan are stoking inflation, encouraging credit abuse and paralysing monetary policy.
"China's massive reservoir of foreign exchange reserves (now $800 billion) has the clear potential of becoming a major source of instability," it said. The Shanghai property market has already lurched from boom to bust, with Beijing expected to follow this year.
Charles Dumas, world economist for Lombard Street Research, said China's over-reliance on exports made it vulnerable to a hard landing later this year. "China is no longer a locomotive for the world economy, it's a coach. When the US slowdown comes in the second half, China is going to suffer. Growth could fall below 5pc and that would feel painful."
The Chinese say they are behaving just like Europe in the 1950s and the Asian rim in the 1960s and 1970s, exporting their way to prosperity and embracing technology as fast they could.
As it moves up the chain, China's toy and shoe production is stalling due to rising wage costs, while IT sector profits have been shaved razor thin. China is being undercut by India.
The trick for all emerging economies is to know how to make the switch from export-led growth to a mature economy. Japan left it too late, ending up with an over-priced export machine and 15 years of gruelling asset deflation. Now China is running out of time to avoid the same trap.
But China intends to switch over the new industrial machine into a war economy.
What has gone unreported is how they have very blatantly kept control over the labor force, and the industrial planning...and done things which the Western "partners" (actually dupes) ...thought were simple graft or political inefficiencies. But were instead intended from the very beginning to make sure that the new plants could convert to dual use relatively smoothly.
If they can, in the run-up to that eventual switch-over, bankrupt their principal adversay, the U.S., or at least put all of the West into the equivalent of oversupply-glut-induced Great Depression...so much the better.
The U.S. trade gurus won't know what hit them.
The predators won't turn on each other until the carcass of the American Middle Class is picked clean.
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