Conflicting Global Economic Signals as Europe Applauds More Chinese Imports

October 24, 2008 Posted by China Briefing Reading Time: 4 minutes

Beijing ASEM meetings set to tackle the global recession

Oct. 24 – Trying to estimate the true impact of the financial crisis is proving to be a hard animal to pin down in the current global environment with so many undercurrents swirling about and muddying waters. The United States alone, with its sub prime debt, doesn’t appear too concerned, with business people on the streets at least continuing to spend money on luxury items and enjoying fine dining, while the nation looks ahead to an election and the possibility of what may prove to be a globally appreciated Barack Obama presidency in sight. Restaurants in Chicago, New York and Washington appear to be doing a roaring trade, while workers, American shopkeepers, hotel staff, cleaning ladies and taxi drivers—at least that I have spoken to over the past two weeks—do not appear to be too affected by “the credit crunch.” Even smaller merchant banks seem upbeat and expect to be able to raise funds. That is in direct contrast to the current media coverage.

Signals from China too, appear to be mixed. The international and American press has made much of the problems a China downturn would bring, with slowing down of steel exports, and of export driven manufacturers being squeezed out of business. As concerns the U.S. media, there seems to be a delight that China is also affected; or is it more politically driven, designed to show economies elsewhere are not immune and have their problems too, thus taking the heat off incompetent American politicians? For sure, economic signals of recessionary behavior, based on media reports and actual on-the-ground knowledge, seem to conflict greatly.

One such case is the much anticipated slowdown in China growth, extending to perhaps domestic bankruptcies and social problems with laid off workers as the export market contracts. A downturn in the United States and Europe, the logic seems to suggest, will result in less Chinese products being exported to fulfill demand. A major China downturn thus, is inevitable.

So far, theoretically credible. However, it’s not a position borne out by careful analysis. With China and the EU attending the annual Asia-Europe Meeting (ASEM), comprised of political and business leaders from both regions starting today in Beijing, the Chinese concern is not one of dwindling exports, in fact quite the reverse.

But back to ASEM. If you haven’t heard of it, ASEM formally admitted six new members during 2008: Bulgaria, India, Mongolia, Pakistan, Romania and the ASEAN secretariat, bringing the membership up to 45 partners. It now represents half of the world’s GDP, almost 60 percent of the world’s population and 60 percent of global trade and embraces virtually the whole of Asia and Europe. Consequently, what is discussed at the meeting is likely to reflect very much the trend of any global downturn. Admittedly, it specifically does not include the United States, however it goes without saying that the global downturn will be very much on the agenda.

The Chinese, in recent talks with Pascal Lamy, the World Trade Organization Director-General, raised concerns about anti-Chinese protectionism creeping back into global trade as a result of the downturn (historically, low-cost Chinese goods become more in demand during recessions). Indeed, the issue is on the agenda at the ASEM talks. That doesn’t match up with media reports of a major Chinese export slowdown.

Indeed, the EU seems positively bullish on the matter, as low-cost Chinese goods are seen to assist European retailers and consumers more than they trigger job losses. That perspective was echoed by Dezan Shira & Associates legal services senior associate in Beijing, Richard Hoffmann, who attended a meeting with visiting diplomats from the Austrian government in Beijing last week and found the Austrians “Very enthusiastic about business in China, including Chinese exports to the country, and very much wanting to encourage Chinese manufacturers to sell to Austria.”

Protectionism then, is the item that China is concerned about in the global downturn, not a downturn itself in exports. That said, 2008 has seen an increase in allegations of Chinese dumping, to 37 cases in the year-to-date. However, Peter Power, a spokesman for the EU Commission has stated, “we’re not seeing a protectionist backlash against Chinese goods this time around.”

That is good news for China, and is endorsed by economists with the Royal Bank of Scotland, who have said “Made in China is the preferred brand in recessions of concerned Western consumers” and point to previous downturns in the United States where Chinese products gained, rather than lost market share. Those occasions however lead to increased calls in the US for protection against Chinese imports, exactly the scenario the Chinese seek to avoid. While Europe therefore seems blasé about an increase in Chinese exports, that may not be the case in America, with a change of administration likely, and with the Democrats tending to be traditionally supportive of trade restraints.

China’s official at the ASEM talks, Wang Qishan, who has specific responsibility at the talks for “Economic Crisis Management,” a major feature of this round, says that China wants a new round of global trade talks, including the United States to take place and to firmly resist protectionism. So far, so good; but the picture for the prospects of an economic downturn seem even less clear. Europe appears to want to trade out of it, while China expects exports to remain robust, both scenarios that are not actually appearing in mainstream media – in fact the reverse appears to be true. As for the United States, local sentiment on the street seems either blinkered or unconcerned.

If true, the impact of the “global recession,” if the current financial problems can be correctly managed, and if global trading can be encouraged rather than subjected to barriers, may yet turn out to be a paper bear, rather than a severe depression lasting for two years. The ASEM talks therefore may give us significant indications of the direction of the economic climate for 2009 in the face of the current conflicting media reports as to the extent of the global impact brought by the current American financial crisis. It may be an accurate predictor model, neither Europe nor Asia is involved with any major election issues right now, and this should present an opportunity for more clear cut thinking and direction over the way out of the current global predicament.

China Briefing News will cover the ASEM talks in full during the next few days. Visit us each morning for daily updates: www.china-briefing.com/news.