Gumboot On The Other Foot For China's Currency

The Age

Saturday March 17, 2007

Mary-Anne Toy, Beijing

Record trade surpluses are putting a different kind of pressure on China's booming economy.

AUSTRALIA imported about 89 million pairs of footwear from China last year, including thongs and gumboots.

China's dominance of low-value manufacturing - cheap clothing, shoes, computers, mobile phones, toys and games - has led to record trade surpluses for the world's most populous nation.

But in February, the surplus spiked to an incredible monthly high of $US23.8 billion ($A30.5 billion), nine times more than a year ago.

The record surplus couldn't have come at a worse time for China, giving a boost to protectionist US Congress members to introduce a steep increase in tariffs on Chinese goods to protect American manufacturing.

Coming close on the heels of China's record annual trade surplus last year of $US177.5 billion, the February spike is likely to intensify US demands for a faster and steeper appreciation of the yuan.

Protectionists argue that because the value of the yuan is kept artificially low, this gives Chinese goods an unfair cost advantage. They argue that if the yuan were traded freely, it would increase substantially in value and more accurately reflect the true cost of Chinese goods.

Chinese demand for Australian resources has contributed to record prices for iron ore and other commodities, underpinning our healthy economy.

This has muted concerns by unions and others about China's negative impact on our manufacturing sector.

On top of the 89 million pairs of shoes, Australia imported 2.6 million televisions and computer monitors and 76,000 dishwashers from China last year.

Victoria imported more than a million computers, about 50 million shoes, including thongs and gumboots, and about 500,000 video games.

NSW bought 6 million computers, 2 million video games, about a million television monitors and 103,000 fridges.

China is Victoria's second-biggest trading partner, after the US, with annual trade increasing every year.

Last year, Victoria's top three imports from China remained clothing (almost $1.6 billion), toys, games and sporting goods ($525 million) and footwear ($440 million).

Imports of telecommunications equipment ($385 million) to Victoria increased to take the No. 4 spot, displacing furniture imports, static at $295 million from the previous year.

China is Victoria's second-largest source of imports but is the biggest source for NSW.

Although Victoria's exports to China have increased an average 15 per cent a year over the past decade, they didn't show the same increase last year at $1.87 billion, slightly up from $1.82 billion in 2005.

Victoria's trade deficit with China increased to $6.1 billion last year, up from $4.8 billion in 2005.

In 2006, the top five NSW imports from China were computers ($2.3 billion), clothing ($1.3 billion), a big leap in telecommunications equipment (up from $866 million in 2005 to almost $1.2 billion last year), toys, games and sporting goods ($605 million) and computer parts ($535 million). NSW's trade deficit with China increased to $10.2 billion, up from $8.9 billion in 2005. About 70 per cent of imported goods enter Australia through Victoria and NSW before they are distributed to the rest of the country.

Australia's trade deficit with China increased last year to just over $5 billion after another year of big growth in the two nations' trading relationship.

Australia exported $20.38 billion of goods to China, mainly resources such as iron ore, wool, copper, coal and cotton, and imported $25.5 billion of Chinese goods, mainly clothing, computers, mobile phones, toys, games, sporting goods, furniture and shoes.

China has taken a number of measures to tackle its trade imbalance - including allowing a slightly faster appreciation of its currency and trying to encourage greater consumer consumption - but in the first two months of this year the surplus has accelerated, adding a further $US39.6 billion.

The free trade agreement negotiations between Australia and China would help reduce the imbalance, particularly if the tightly controlled Chinese market for services was loosened in Australia's favour.

Education and tourism are Australia's major services exports. The Department of Foreign Affairs and Trade says that apart from education and tourism, China has great potential as a market for Victorian financial, investment, banking, legal and sports and recreation services.

Chinese demand for Australian automotive parts for its rapidly growing car industry is also expected to grow.

Supply of specialist manufacturing equipment, needed as China tries to move beyond low-cost manufacturing, is another potential growth area for Australian exporters.

The department says areas with export potential for NSW include education plus financial, legal, insurance and architectural services as China intensifies urbanisation and integrates further with the global economy.

BUSINESS 10

? China 'concerned' about surplus

© 2007 The Age

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