US economic recession likely boon for China in trade, investment

Interesting article...

Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2008/200801/20080124/article_346388.htm


US economic recession likely boon for China in trade, investment
Created: 2008-1-24
Author:Mei Xinyu


THE concern by many Chinese that the US' possible economic recession might mean
an overwhelming shock for China is unnecessary.

A US recession might not necessarily lead to the reduction of its imports from
China. Rather, it might even create opportunities for China.

Despite the fact that in the highly globalized world economy, economic recession
might result in the reduction in the overall import volume of a developed
country, it should be noted that recession stimulates a country's demand for
relatively low-priced imports.

While China has been making efforts to upgrade its commodities structure of
export, cheap commodities still account for the majority of its exports to
developed countries such as the US and European countries.

Therefore, economic recessions in developed countries are more likely to lead to
increases in their imports from China, rather than the other way around.

This is proved by the fact that although US economic development slowed down ever
since the later half of 2000, China's annual export to the US has been
continuously on the rise.

Of course, China will have to readjust its restrictive macro economic policies if
the economic recession of the US gets serious.

Further, the benefits to China from its foreign trade are not limited to its
exports, but also its imports, especially the import of advanced technological
equipment, energy resources, raw materials, and overseas investments.

It is precisely in these areas that the interests of China and the US do not
overlap.

As a developed country, the US has always been on the alert for China's
development.

In as early as 1949 when the People's Republic of China was just founded, the US
issued its NSC41 (National Security Council) document with which it created a
broad, strict and rigid export control system of strategic materials against
China.

Even today, the control system has not been relaxed.

What's worse, the latest rule issued by the US further broadened the control on
its exports to China and complicated the approval procedures.

In such cases, the amount of technological equipment that we can import from
developed countries depends heavily on the export controls of those nations and
the prices they quote.

When developed countries experience an economic boom, due to high domestic
demands, they are likely to be more conservative in their export of advanced
technological equipment to China and thus quote higher prices.

Contrarily, when they enter economic recession, because of reduced domestic
demands, they are likely to loosen export controls and offer the equipment at
lower prices.

In this sense, the US recession will provide a good chance for our country to
increase its import of advanced technological equipment from the US.

In this way, we will be able to transform the economic crisis of a developed
country into an opportunity for the development of China.

The situation is similar in terms of China's investment in the US.

In 2005, China National Offshore Oil Corporation (CNOOC) met with great
difficulties and was thwarted in the end in its attempt to buy Unocal in the US.

Yet this time, as the US has fallen into economic crisis, Chinese financial
institutions didn't meet with even the least objection from anti-China forces in
the US when they recently offered to invest in Bear Stearns and Morgan Stanley in
that country.

Although products made in China sell all over the world, China's manufacturing
industry is still too weak to make big profits.

Therefore, purchasing world famous brands and distributors is no doubt the
quickest way to raise our profitability.



(The author is a senior researcher under the Ministry of Commerce. The views are
his own. His Website: www.meixinyu.com)