China's Trade Surplus Set to Halve, But Not America's Share
Officials in China's commerce ministry expect the People's Republic of China to run a trade surplus with the rest of the world amounting to $15 billion this year, about half of last year's surplus. That won't give much comfort to President Bush when he hosts Chinese Premier Wen Jiabao this week. China's surplus with the US won't budge a bit, mostly because of Chinese policies.
It is an axiom of world trade that the American's import more than they export as a matter of national character. Much of this problem starts with oil and ends with electronics. However, in the case of the Chinese-US relationship, this habit is exaggerated by two factors, both under Beijing's control. First, the command economy of China is structured in such a way that petty political officials can louse up the best deal even more than their western counterparts. Second, China has pegged its currency to the dollar, which prevents the market from addressing this portion of the country's over-all trade surplus.
China has been playing fast and loose with its economic structure for the last generation or so, but it remains a centrally planned mess. For ideological reasons, it is likely to stay that way for some time yet, which means Americans will have a hard time breaking into China's markets. China has, in fact, been the great myth of world trade -- "there are over a billion consumers there; if we could just get a piece of that action . . . " Few multinationals have China as their largest market. It's just easier elsewhere.
However, there is nothing keeping the Chinese currency pegged to the dollar, and therefore, encouraging excessive imports by Americans, except Chinese policy. The Reds in Beijing, though, have a golden opportunity for a public relations coup -- float the local currency and watch it rise against the dollar. It will be further proof that China has arrived.
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