Thu, Jan 13, 2005 page12

• China's growth a double-edged sword

  TRADE BATTLES Beijing's ballooning surplus has become the backdrop for a heated debate in the US over whether trade with China is good or bad

  • NY TIMES NEWS SERVICE
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  China reported on Tuesday that its trade surplus grew for the seventh consecutive month to a record US$11.1 billion last month. The surplus helped send China's foreign currency reserves soaring further, lifting the economy to another year of extremely strong growth, Chinese officials announced.

  The robust performance, however, is a double-edged sword for China. It is likely to increase pressure on Beijing to allow China's currency, the yuan, to rise in value against the dollar as foreign investment and export earnings pour into the country at an accelerating pace.

  China's ballooning surplus also serves as a convenient backdrop for an increasingly polarized debate in the US over whether trade with China is good or bad for the economy.

  As if on cue, Secretary of Commerce Donald Evans, arriving in Beijing on Tuesday with a team of trade negotiators, prepared to hand China a stern warning of restiveness among lawmakers and businesses in the US.

  In remarks set for delivery yesterday, Evans cautioned that China's surplus, and what US officials describe as unfair practices, including alleged government subsidies to exporters and patent violations, could trigger a backlash.

  "China must forcefully do more to lift barriers to free trade and confront widespread intellectual property theft that is undercutting American workers," Evans said. "China's willingness to tackle these challenges head-on will be the most important measure of the success or failure of its efforts."

  Adding more fuel to the fire, a research group in Washington reported on Tuesday that, had the US not run deficits with China since 1989, the country would have 1.5 million more jobs today.

  The trade deficit with China grew to US$124 billion in 2003 from US$6.2 billion in 1989. The study was prepared for the United States-China Economic Security Review Commission, a congressionally appointed panel, by Robert Scott, the senior international economist at the Economic Policy Institute, a liberal think tank.

  The report said that jobs were lost in every state, but the highest numbers came from California, Illinois, New York, Pennsylvania and Texas. Among the hardest hit states as a share of total state employment were Arkansas, Maine, Massachusetts and North Carolina.

  The job losses were not just in labor-intensive industries, like textiles and plastics, but also from new sectors once thought to be out of China's reach, such as high technology.

  "What is really shocking is the rate that China has moved into the production of high skill, high technology product," Scott said. "China is now entirely responsible for our US$32 billion deficit in advanced technology products like computers, electronics."

  Not everyone agrees with Scott's conclusions. Daniel Gris-wold, the director of the center for trade policy studies at the Cato Institute, a libertarian think tank, disputed both the report's methods and its findings.

  "There is no connection between employment and our trade with China," Griswold said. "But even if the finding of 1.5 million jobs is correct, it is spread over one decade and a half and that amounts to less than 1 percent of job displacement over the entire period."

  Instead of focusing solely on job losses, Griswold said the report should have included the money China invests in US Treasury bills that keeps interest rates down.

  China's exports of everything from clothing to consumer electronics have been rising rapidly last year, and were 33 percent higher last month than in 2003, its Ministry of Commerce announced.

  But high oil prices combined with China's attempts to build emergency oil reserves inflated the cost of the country's imports, until recently offsetting the big expansion of exports.

  Lower oil prices are now allowing China's remarkable export performance to show up in bigger and bigger trade surpluses.

  To prevent the yuan from rising in value, China's central bank has been buying up the extra dollars flowing into the country from the trade surpluses and from growing investment by multinationals and speculators alike.

  Reuters reported from Beijing on Tuesday that the country's foreign currency reserves had surged to US$609.9 billion by the end of December, up 51.3 percent from last year.
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