Re: China surpasses the United States as the world's foremost manufacturer
I have to agree with Typhung on this one. China is using alot of its financial resources to maintain GDP growth in a wasteful manner, and one day this pigeons will come home to roost. The problems may well be excerbated with a downturn in trade with the trade balance falling into negative mode as more and more countries have second thoughts on becoming to reliant on China.
-Brazil and China: A young marriage on the rocks
Brazil and China: A young marriage on the rocks
Brazil and China: A young marriage on the rocks | Reuters
By Brian Winter and Brian Ellsworth
BRASILIA | Thu Feb 3, 2011 9:21am EST
BRASILIA (Reuters) - At least once a week during her young presidency, Dilma Rousseff has met with trusted advisers to try to solve an intractable problem -- China.
Only a few months ago, Brazil and China seemed destined to enjoy one of the defining alliances of the early 21st century -- two fast-growing emerging market economies seeking ever-greater opportunities for business together and standing side by side on key global issues such as trade negotiations.
It's not quite working out that way.
Rousseff's regular meetings are just one sign of how she is steering Brazil toward a more confrontational stance with China. She is trying to address what she sees as an increasingly lopsided relationship while also bringing Brazil's strategic alliances in line with her dream of turning it into a middle-class country by the end of the decade.
The core problem is a torrent of Chinese imports that has quintupled in size since 2005, with disastrous effects for Brazilian manufacturers and the well-paying, highly skilled jobs that Rousseff is so focused on creating.
While the weekly session of ministers and finance ministry officials is ostensibly about how to improve Brazil's competitiveness in global trade, "it's basically a China meeting," said one high-level official who takes part.
"Relations between the two countries are not hostile," the official said. "But we are going to take measures to protect ourselves ... and push for a more equal relationship."
In the short term, senior government sources say that will mean more targeted tariffs on manufactured goods coming from China and tighter supervision by customs officials, as well as more anti-dumping complaints against Beijing.
Growth in Brazil-China trade: r.reuters.com/puw77r
Brazilian exports to China: r.reuters.com/kuw77r
New restrictions on foreign mining companies are also likely, officials say, reflecting concerns that China wants to consolidate its grip on Brazil's commodities wealth while offering insufficient access to its own market.
In a break from her predecessor, Luiz Inacio Lula da Silva, Rousseff will push for a stronger yuan currency and more access to the Chinese market for Brazilian companies like airplane maker Embraer (EMBR3.SA) when she visits China in April.
In the long run, Brazil and China are likely to retain relatively warm ties and continue to expand bilateral trade. Yet the shift evolving since Rousseff took office on January 1 could affect everything from Brazil's relationship with the United States to the future of so-called "south-south" ties among emerging market countries.
"It's surprising that the relationship is changing so fast," said Mauricio Cardenas, director of the Latin America program at the Brookings Institution, a Washington think tank.
"Brazil is clearly seeking major changes ... That could have consequences for all of Latin America as many other countries, who are experiencing the same problems (with China), follow the example of Brazil," Cardenas said.
Redefining a relationship with China is easier said than done. Just as the United States has struggled to balance its demands for a stronger yuan against its desire for cheap Chinese imports and financing, Brazil must also untangle a web of dependence that has grown rapidly in the last decade.
Bilateral trade soared from just over $2 billion (1.2 billion pounds) in 2000 to $56.2 billion in 2010. China has surpassed the United States as Brazil's main trading partner and was the biggest single source of foreign direct investment last year, at about $17 billion.
The robust trade growth helped Brazil's economy expand last year at its fastest pace in two decades. It also means that any efforts by Rousseff to pass new protectionist measures may be fruitless, said Qiu Xiaoqi, China's ambassador to Brazil.
"Trade between China and Brazil grew so fast because of a reciprocal need. When that need exists, nobody can get in the way," Qiu told Reuters in a rare interview.
Qiu, who prides himself on his Brazilian cultural knowledge and insisted on conducting the interview in Portuguese, attributed anti-China rumblings to "a minority" of officials on Rousseff's team. He also pointed out that Brazil had a large trade surplus with China last year -- about $5 billion.
A closer look, however, shows that it would have been a deficit if not for an extraordinary increase in the price of iron ore, which accounted for 40 percent of exports to China.
Brazilian exports to China as measured by weight -- thus, controlling for increases in commodities prices -- fell 3 percent in 2010, while Chinese imports rose 89 percent.
"Brazil has been naive in its management of the China relationship in recent years. It's far more uneven than most people think," said Fernando Henrique Cardoso, an opposition party leader who was president of Brazil from 1995-2003.
SEEKING CLOSER TIES WITH WASHINGTON
Despite Brazil's strong economic growth last year, its manufacturers are reeling. Industrial production has been flat or shrinking since April, and the damage in areas like textiles and shoes has been so severe that the National Industry Confederation, or CNI, has warned of "deindustrialization."
The shift under Rousseff reflects her emphasis on nurturing local industries while Lula's trade policy was in part dictated by his dream of a grand alliance among developing nations.
Still, some who do business in both countries worry that China is being used as a scapegoat for Brazil's own problems.
"Brazil's lack of competitiveness has nothing to do with the Chinese," said Charles Tang, president of the Brazil-China Chamber of Commerce and Industry in Rio de Janeiro.
He attributed Brazil's problems to high taxes, labor costs and infrastructure bottlenecks that, along with an overvalued currency, make local goods comparatively expensive to produce.
He also said that Brazilian companies, which for decades focused primarily on their own large domestic market, have missed several opportunities to do more business in China.
Soraya Rosar, a trade expert at the CNI, agrees but says Rousseff needs to push for greater access to China's market.
Meanwhile China is reputedly more than a little concerned with its foreign holdings
By AARON BACK
BEIJING—China's government, one of the biggest holders of debt from Fannie Mae and Freddie Mac, voiced confidence that Washington would continue to stand behind the obligations of the U.S. mortgage giants after the Obama administration outlined options for phasing them out.
The statement by the State Administration of Foreign Exchange, or SAFE, the arm of China's central bank that manages foreign-exchange reserves, reflects Beijing's continued concern about perceptions within China of the safety of its U.S. investments. Most of China's $2.85 trillion in reserves is invested in dollar assets, and while China doesn't disclose the size of its holdings of Fannie and Freddie securities, past records show it owning hundreds of billions of dollars of debt from them and other U.S. government-linked agencies.
Chinese officials have raised concerns about the possible impact of U.S. policy on the future value of China's dollar holdings, saying loose monetary policy could hurt the value of U.S. assets. But the government has also rejected rumors that it has lost money on its existing holdings of Fannie and Freddie debt.
The Obama administration on Friday issued a white paper on plans to reduce U.S. government involvement in the mortgage market, including an eventual phaseout of Fannie and Freddie, which the government took over in 2008. But the White House's report emphasized that it "will not waver from its commitment" to ensuring that the two "have sufficient capital to honor any guarantees issued now or in the future and meet any of their debt obligations."
SAFE's statement, posted on its website Saturday, said the White House plan "has aroused widespread public interest and concern that our foreign-exchange reserve investments could be damaged." The statement said China has not had losses on its Fannie and Freddie holdings, and added that SAFE "took particular notice that the U.S. government's commitment to support [Fannie and Freddie] hasn't changed."
China. U.S Treasury data show that as of June 2009 China held $454 billion of long-term U.S. agency debt, the bulk believed to be Fannie and Freddie debt. More recent figures on its holdings haven't been published.
But separate Treasury data show China has been steadily selling its holdings of agency securities since mid-2008, including net reductions of $24.67 billion in 2009 and $27.35 billion in the first 11 months of 2010. Those figures don't include transactions through intermediaries in other countries, however.
Public concern in China about possible losses on its U.S. investments has flared up repeatedly in China since the start of the global financial crisis. Many Chinese seem to believe that during the crisis the country lost vast sums on its U.S. holdings.
Last week, Lu Zhengwei, a senior economist at Industrial Bank Co., a small Chinese lender, said in a report that the commitment by the Obama administration to pay back holders of Fannie and Freddie securities amounts to an "empty check" without the support of the U.S. Congress. "Looking at the current political situation in the U.S., for the U.S. Congress to give a clear guarantee on this issue is almost impossible," Mr. Lu said.
The same day, a separate report in the Chinese newspaper International Finance News cited unnamed analysts as saying that losses on China's Fannie and Freddie holdings could reach $450 billion. The report provided few details on its calculations.
SAFE responded with a statement on Friday denouncing such estimates as "groundless," and strongly denying that it faces any losses. The denial was given prominent treatment by state media Friday evening, including during the widely watched evening news broadcast on state television.
Last year, outlandish rumors spread that the central-bank governor, Zhou Xiaochuan, had defected to the U.S. because of hundreds of billions of dollars in purported losses on U.S. debt—even though U.S. Treasurys were in fact one of the best-performing assets at the time.
In late 2008, a lengthy Chinese-language essay circulated online excoriating Mr. Zhou and other top officials for being too close to the U.S., accusing them of having "colluded" with then Treasury Secretary Henry Paulson to buy U.S. bonds.
