China Uses Rules on Global Trade to Its Advantage
By Keith Bradsher
With ’s exports soaring, even as other major economies struggle to recover from the , evidence is mounting that Beijing is skillfully using inconsistencies in international trade rules to spur its own economy at the expense of others, including the United States.
Seeking to maintain its export dominance, China is engaged in a two-pronged effort: fighting among its trade partners and holding down the value of its currency.
China vigorously defends its economic policies. On Sunday, Premier criticized international pressure on China to let the currency appreciate, calling it “finger pointing.” He said that , China’s currency, would be kept “basically stable.”
To maximize its advantage, Beijing is exploiting a fundamental difference between two major international bodies: the , which wields strict, enforceable penalties for countries that impede trade, and the , which acts as a kind of watchdog for global economic policy but has no power over countries like China that do not borrow money from it.
China had a $198 billion trade surplus with the rest of the world last year, with its exports to the United States outpacing imports by more than four to one. Despite that, in the last 12 months, Beijing has filed more cases with the W.T.O.’s powerful trade tribunals in Geneva than any other country complaining about another’s trade practices.
In addition, Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.
China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.
Many prominent academic economists see a basic contradiction in the global system of oversight on trade and currency.
“Many of us would like to see the W.T.O.-style commitments — with people’s feet being held to the fire — at other international agencies, like the I.M.F.,” said , a economist.
Western countries hoped last year to bring international pressure to bear on China, after years of complaining that Beijing keeps the renminbi artificially low.
An undervalued currency keeps a country’s exports inexpensive in foreign markets while making imports expensive. That makes a trade surplus more likely, reducing unemployment for that country while increasing unemployment in its trading partners.
Last September, , President of China and other leaders of the industrialized and developing countries agreed in Pittsburgh that all the G-20 countries would begin sharing their economic plans by November. The goal was to coordinate their exits from stimulus programs and prevent the world from lurching from recession straight into inflation.
The G-20 leaders agreed that the I.M.F. would act as intermediary.
But two people familiar with China’s response said that the Chinese government missed the November deadline and then submitted a vague document containing mostly historical data. These people said that China feared giving ammunition to critics of its currency policies at the monetary fund and beyond. Both people asked for anonymity because of China’s attitudes about its economic policies.
If China is found to be manipulating its currency, it could be a political and economic challenge for the Obama administration. President Obama called on Thursday for China to introduce “a more market-oriented exchange rate.” China’s defiant response keeps the administration in a difficult position.
China is the biggest buyer of at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt. But the also faces an April 15 deadline for whether or not to list China as a country that manipulates the value of its currency.
If China is listed, that could embolden members of Congress who are already discussing whether to seek restrictions on Chinese exports to the United States. China would certainly criticize such retaliation as protectionism, leading to a broader deterioration in already strained bilateral relations.
China is starting to describe its currency interventions as stimulus. But unlike extra government spending in the United States and other countries, currency intervention does not expand global demand, but shifts it from other countries to China.
Two closely related scourges played a central role in the collapse of world trade in the 1930s: protectionism and beggar-thy-neighbor currency devaluations. World leaders set up two institutions after World War II, now known as the W.T.O. and the I.M.F., to reduce the risk of another Great Depression.
Unlike its predecessor, which had weak arbitration panels whose rulings could be easily blocked by the losing country, the trade organization has had powerful tribunals since 1995. These tribunals can clear the way for the imposition of sanctions running into the billions of dollars.
Filing a case against another country is the heaviest artillery available to countries in trade disputes. But it also is expensive. Preparing a case and pushing it through a tribunal can easily require millions of dollars in legal expenses, and low-income countries seldom file them.
China joined the W.T.O. in 2001 and in its first seven years filed only three cases. But it has stepped up its pace recently, and has filed four of the 15 cases in the last year: two against the United States, on poultry and tires, and two against the , on steel fasteners and poultry.
The monetary fund has not acquired similar powers to the trade organization.
I.M.F. policies call for it to disclose documents and information on a timely basis, with the deletion only of market-moving information. But under the rules a member country may decide to withhold a report, an organization official said.
China allowed the release of its reports until the monetary fund’s executive board decided in June 2007 that reports should pay more attention to currency policies. China has quietly blocked release of reports on its policies ever since, without providing its specific reasons to the I.M.F.
A person who has seen copies of the most recent report last summer said that the monetary fund staff concluded the renminbi was “substantially undervalued.”
The monetary fund regards a currency as substantially undervalued if it is more than 20 percent below its fair market value.
More than four-fifths of the I.M.F.’s members allow publication of the agency’s annual staff reports on their economies. Countries blocking release are mostly tightly controlled places like Myanmar, Sudan, Turkmenistan and Saudi Arabia, although Brazil has also not released its reports.
China’s central bank did not respond to calls and messages seeking comment.
The main indicator of a country’s intervention in currency markets is its level of foreign reserves. China halted the gradual appreciation of the renminbi against in July 2008; from June 30, 2008, through Dec. 31 of last year, China’s foreign exchange reserves rose by $590 billion. A small part of the increase reflected interest on bonds, the appreciation of stocks and currency fluctuations.
Keith Bradsher is a reporter for The New York Times. He has been their chief Hong Kong correspondent since 2002, reporting on events from greater China and southeast Asia, on topics ranging from news to finance and culture. He won the Society of Publishers in Asia (SOPA) award for coverage of avian flu in the area.
Previously, at The New York Times he had been the Detroit bureau chief, a Washington D.C. correspondent, and a reporter covering the airline and telecommunications industries.
He won the George Polk Award for national reporting on his coverage of sport utility vehicles in 1997 and was a finalist for the Pulitzer Prize the same year. Later, he published a book on SUVs called "High and Mighty," which won the New York Public Library Helen Bernstein Award
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