Chinese economy creates problems worldwide

Chinese economy creates problems worldwide

In many ways China is causing problems globally, while developing its economy and struggling to fulfill the requirements of the country. Material shortages and consequent constantly increasing prices are the widely known problems derived by this economic expansion of China. Furthermore, trade partners of China, especially US which reported a record trade deficit of $124 billion with China in 2003 and complained that China does not comply with trade rules of the World Trade Organization (WTO) since its entry to the Organization in December 2001, are displeased by China's unfair trade. According to complaints, China is not complying with WTO requirements, such as environmental pollution, employee rights etc. Besides, China interferes its economy through tariffs, quotas, currency controls, bureaucratic barriers on trade and several other measures coupled with difficulties in giving trading rights to all joint ventures with foreign investors. However, these interventions brought by Chinese government, in an effort to protect domestic industries from foreign competitors, deform the transparency and leads to non-compliance with fair trade rules. In respect of claims by US and its current market conditions, producers in the country face serious shortages, which may cause plant closures and job losses. Furthermore, jobs move to China periodically and keeping Renminbi (RMB) artificially low against US Dollar which led to multiplying of China's own export competitiveness, leaves US out of Chinese market and contributes to the relatively high trade deficit for 2003 between the two countries. For 2004, trade deficit seems to be growing with 11.5 billion$ recorded only in January. China had removed certain trade barriers since its entry to WTO, but they were not as vital as the ones that are still in effect. Its trade partners requested China to raise its standards up to WTO level and make necessary regulations in its trade business. China reminded that US had been pretty protectionist over steel imports and implemented measures which were later found contrary to WTO and to be violating trade rules. Nevertheless, complaints must have attained its objective as China revised and published new version of its foreign trade law last week. The new version, compatible with WTO rules, aims to improve foreign trade system, secure a fairer and freer market and protect foreign trade operators. Besides, it will allow even an individual to make foreign trade. Monopolies and unfair competition will be prevented. The law that will enable China to implement anti-subsidy and anti-dumping measures in order to safeguard industries in the domestic market under the framework of WTO, will be valid as of July 1, 2004. Figures indicate that China imported over 150 million tons of iron ore last year due to overheating in steel industry, mainly triggered by the construction sector. For this year and 2005 these figures forecasted to reach 200 million and 342 million tons, respectively. According to the Organization for Economic Cooperation and Development (OECD), China consumed over 25% of global steel production in 2003. In order to secure raw material supplies, particularly materials which are insufficient such as iron ore, steel producers in China are trying to make deals with foreign suppliers and build joint ventures abroad. According to reports from the industry, one producer plans to build a mill in Brazil and a deal was concluded in last couple of months for iron ore supply from North America. On top of this, China, already being the world's largest steel producer with a 30% share in worldwide steel production, forecasts its production to improve this year by almost 19% with new blast furnaces on the way. Meanwhile, since early January 2004 steel costs grew up by %30 on average. Many leading steel producers are expected to apply further price hikes in the next quarter and this worries steel related industries worldwide. Ironically, those industries are lobbying for restrictions on scrap steel exports which will be incompatible with WTO trade rules. China being the largest steel consumer as well, mainly because of buoyant construction sector due to 2008 Olympic Games, seems as it will continue affecting the world with an insatiable demand unless its major role in the global economy is put to an end.