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Is rising Asian power China an emerging trade bully?

This article first appeared in The Straits Times on Sept 27

Published on Sep 29, 2012 4:59 PM
 
This picture taken on Aug 17, 2012 shows a Chinese bank staff member counting stacks of 100-yuan notes at a bank in Huaibei, east China's Anhui province. -- PHOTO: AFP

No rare earths for Japan, bananas blocked from the Philippines and the famous salmon of Norway left to rot.

Increasingly, when China is angry with other countries, the rising Asian power chooses to hit back with an economic stick, raising fears of an emerging global trade bully.

Given its growing clout as the world's second-largest economy, such vengeful attacks, which Japan is feeling amid a territorial spat, can hurt.

But it does not. Not that much.

For all the fearsome talk of China using trade as a weapon, Beijing has taken a calibrated and pragmatic approach designed to attract headlines, but not hurt the bottom line.

Once the fireworks have died down and the nationalistic domestic audience has moved on to the next hot-button issue, Beijing usually eases up on sanctions, blockages and boycotts.

That was what happened with the Philippines. During a tense naval stand-off over the disputed Scarborough Shoal in the South China Sea in April, the Chinese chose to hit back with a bit of fruit warfare.

The Chinese quarantine authorities blocked Philippine bananas, the country's second-biggest agricultural export, claiming the fruit contained pests.

It became a near all-out fruit blockage when China also began slowing the inspections of papayas, mangoes, coconuts and pineapples from the Philippines.

But by June, when the vessels pulled back, Chinese consumers were once again able to enjoy their Philippine bananas.

Similarly, despite being furious with Norway for awarding Chinese dissident Liu Xiaobo the Nobel Peace Prize in December 2010, China trod carefully in its reprisals. Like with the bananas, it imposed additional import controls on salmon from the Nordic country. It also postponed talks of a free trade agreement.

It made for good propaganda at home. Angry Chinese government punished disobedient Norway. The Communist Party has again stood up on behalf of the Chinese people, against the white men of the West, no less.

But trade between China and Norway actually soared to record levels in the first three months of last year - immediately after the Nobel award and diplomatic row.

Oslo's exports to Beijing were up more than 25 per cent during that period compared with that in 2010, reaching more than US$500 million, according to official numbers from Norway.

Good business went both ways. Imports from China also rose 17 per cent over the same period. Now, it is the turn of Japan, a country that is no stranger to the economic wrath of China.

In 2010, after Tokyo detained a Chinese captain of a fishing trawler in an incident near the Senkaku islands, which China claims and calls Diaoyu, Beijing blocked shipments of rare earth minerals to Japan.

Amid fresh, and angrier, squabbles over the same isles after Japan nationalised them two weeks back, China is threatening harsher measures this time.

The People's Daily, the official organ of the Communist Party, warned last week that China could set Japan back by 20 years through economic punishments.

"Would Japan rather lose another 10 years, or even be prepared to fall back 20 years?" asked the commentary written under the byline Hua Yiwen.

Actions taken so far, based on reports from Japan, include delays in business visas for Japanese and tightened clearance from Chinese customs on Japanese-imported goods.

The latter is similar to the measures adopted for Philippine fruits and Norwegian salmon.

Chinese tourists are also reportedly cancelling trips to Japan, although that is likely to be over safety concerns and not government fiat.

The economic attacks from China are not expected to get worse. The truth is, as a major export nation, there is a limit to what China can do. Unless it is prepared to hurt itself while harming others, it makes little sense to wield the economic weapon.

This is especially true at a time when the Chinese economy is uncertain, slowing for the sixth consecutive quarter.

An impending major leadership change in the Communist Party also needs good news, not job losses and potential unrest.

Japan, like it or not, remains China's biggest trade partner. Japanese companies are big employers in China too. It is also an important source of investment.

While European investments fell 4.1 per cent and United States investments dipped 2.9 per cent during the first eight months of this year compared with the same period last year, Japan's has risen by 16.2 per cent.

As the Asahi Shimbun observed on Tuesday: "China's economy could take a severe beating if Japanese companies falter in the escalating stand-off over sovereignty of the Senkaku islands."

The Chinese government does not need the reminder. It is well aware that when it comes to economics, beggar thy neighbour is a strategy best practised with some style, but very little substance.

Background story

The economic attacks from China are not expected to get worse. The truth is, as a major export nation, there is a limit to what China can do. Unless it is prepared to hurt itself while harming others, it makes little sense to wield the economic weapon.