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TRADE WARS
China's economy on track as June trade surplus jumps
by Staff Writers
Beijing (AFP) July 10, 2014


Economic giants China and US talk trade
Beijing (AFP) July 10 - The US and China discussed trade and business concerns Thursday -- with currencies and property rights among the thorny issues on the agenda -- as the world's two biggest economies held wide-ranging annual talks.

"China and the United represent the greatest economic alliance trading partnership in the history of humankind and it is only going to grow," US Secretary of State John Kerry told a meeting of bosses from top Chinese and American companies.

From small beginnings of about $2.5 billion in 1979 when formal diplomatic relations were established, annual trade between the two economic giants has now grown to a gargantuan $520 billion.

Direct foreign investment between the two has also ballooned, and last year for the first time the amount of investment flowing from China surpassed that from the United States.

"We want to do better," the top US diplomat said.

But there have been a series of US-China trade disputes, while the United States has long insisted that the Chinese yuan, or renminbi, is artificially undervalued.

While the US has not branded China a currency manipulator, which could entail sanctions, it has complained that the weak yuan gives China an unfair trade advantage.

Kerry also highlighted strains over protecting intellectual property as well as concerns over sharing information technology.

"We need to make sure we're protecting intellectual property rights, make sure we're creating transparency in the regulatory process, make sure we are raising the bar for everybody in terms of the standards by which we do business," Kerry said.

The CEOs of such companies as General Electric, Boeing, Fedex, Goldman Sachs and Silicon Valley Bank gathered for the working breakfast with counterparts from large Chinese firms including China State Construction Engineering Corporation, the Wanxiang Group, Dalian Wanda Group and the Shuanghui Group.

"Business is a backbone of the China-US economic relationship," said State Councillor Yang Jiechi, speaking at the meeting on the sidelines of a two-day annual Strategic and Economic Dialogue summit.

The top US trade envoy said earlier this week that the US wants China to break a logjam over a proposed World Trade Organization information technology pact.

China should show "real leadership" by helping to advance negotiations on expanding the WTO's Information Technology Agreement (ITA), US Trade Representative Michael Froman said.

Froman, who attended Thursday's breakfast pow-wow, would not comment on a Financial Times report that the standoff was over China's drive to exclude about 60 new product categories, including medical devices and next-generation silicon chips from the ITA.

But he suggested that if China showed more willingness to negotiate the ITA deal, it could help smooth the way to reach common ground on other troublesome issues.

US administration officials and lawmakers have repeatedly lambasted Beijing for failing to play by global rules, and the breakfast event was billed as a way for major companies from both nations to air difficulties and grievances they have encountered.

"It is important that these firms are able to participate in healthy competition -- on a level playing field -- that will produce benefits for both of our nations and the global economy," US Treasury Secretary Jacob Lew said.

Earlier this month the World Trade Organization called on China to make its trade policies more transparent amid a "striking" lack of clarity on its rules.

China, which recently become the largest trader in the 160-member group, has failed to live up to key transparency commitments it made when it joined the organisation in 2001, WTO members said.

China's monthly trade surplus jumped 16.4 percent in June to $31.6 billion, official data showed Thursday, as exports and imports both rose in the latest sign of recovering strength in the world's second-largest economy.

Exports increased 7.2 percent to $186.8 billion year-on-year, the General Administration of Customs announced, while imports gained 5.5 percent to $155.2 billion.

China is the world's biggest trading nation in goods.

The latest data came with worries over its growth outlook easing following a series of strong indicators in the second quarter, such as industrial production, retail sales and purchasing managers' index (PMI) surveys.

Gross domestic product (GDP) grew 7.4 percent in the first three months of 2014, weaker than the 7.7 percent in October-December last year and the worst since a similar 7.4 percent expansion in the third quarter of 2012.

Customs spokesman Zheng Yuesheng attributed the trade improvement in the second quarter to factors including supportive government policies and a wider global economic recovery.

"We expect the pace of growth in trade will be faster in the third quarter than in the second quarter," he told reporters.

"The stabilisation and recovery trend in trade will further consolidate."

China has since April introduced steps to boost growth, including tax breaks for small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas and to small companies, measures dubbed "mini-stimulus" by economists.

"Improving trade figures, plus the encouraging PMI data, point out that China's growth will likely pick up somewhat in Q2 due to the targeted 'mini stimulus' measures," ANZ Bank economists Liu Li-Gang and Zhou Hao wrote in a report.

"We believe that China will achieve 7.5 percent growth in Q2."

China announces second-quarter GDP results on July 16.

June's trade surplus fell short of the median forecast of $36.9 billion in a survey of 21 economists by The Wall Street Journal.

Exports, which accelerated slightly from May's gain of 7.0 percent, fell well short of the median prediction of a 10.0 percent rise.

- Causes for concern -

Imports, which fell 1.6 percent in May, rebounded to surpass the median forecast of a 5.4 percent increase.

Zheng, the Customs spokesman, stressed that "uncertainties" including rising Chinese labour and raw material costs and attempts by industrialised countries including the US to promote their own manufacturing sectors were causes for worry.

In the first quarter, the market share of seven types of Chinese labour-intensive goods such as textile products declined 0.6 percentage points in the US to 44.4 percent and 0.9 percentage point in the EU to 41.2 percent, he said, while competitors including Vietnam, Mexico and India saw their positions rise.

"It remains an arduous task to achieve the 7.5 percent target for full-year growth in trade," he said.

China's trade statistics this year have been erratic, with Beijing reporting an unexpected trade deficit of almost $23 billion in February, which authorities blamed on the Lunar New Year holiday season. That was China's first monthly deficit in 11 months.

And in March, China's trade volumes fell dramatically in a development that analysts blamed on the continued impact of fake over-reporting of exports seen in early 2013.

For the first six months of this year, China's trade surplus declined 4.4 percent to $102.86 billion, as exports rose 0.9 percent to $1.06 trillion and imports gained 1.5 percent to $960 billion, Customs said.

China's leaders say they want to transform the country's growth model to make consumer spending and other forms of private demand the key drivers of the economy.

The new model would steer it away from an over-reliance on huge and often wasteful investment projects that have underpinned decades of past expansion.

Such a makeover is expected to result in slower but more sustainable growth in the long run.

Julian Evans-Pritchard, China economist at Capital Economics, said that June's export growth failed to impress and both exports and imports were likely to slow in July.

"More broadly though, improving conditions in developed markets mean that we expect the export growth to remain healthy going forward, despite today's disappointing data," he wrote in an analysis.

"China is likely to continue to post large trade surpluses," he added.

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