China seeks to diversify markets

Officials look to curb reliance on U.S. for imports, exports

A worker stands near a container ship earlier this month at a port in Qingdao in eastern China. Beijing is responding to a trade war with the U.S. by pushing companies to curb reliance on U.S. goods, but finding alternative sources is proving difficult for them.
A worker stands near a container ship earlier this month at a port in Qingdao in eastern China. Beijing is responding to a trade war with the U.S. by pushing companies to curb reliance on U.S. goods, but finding alternative sources is proving difficult for them.

BEIJING -- Faced with plunging U.S. orders, surgical glove maker Ren Jiding is hunting for new markets amid Chinese government calls to reduce reliance on the United States. But none can absorb the 60 percent of his sales that went to American customers last year.

"Other countries import much less than the United States," said Ren, a co-owner of Hongyeshangqin Medical Science and Technology Co. Ltd. in the eastern city of Zibo.

From medical products to smartphone chips to soybeans, Beijing is responding to President Donald Trump's tariff increases by pushing companies to trade more with other countries. But there are few substitutes for the United States as an export market and source of technology for industries including telecom equipment makers Chinese leaders are eager to develop.

Beijing has rejected U.S. demands to scale back plans such as "Made in China 2025," which calls for state-led creation of Chinese champions in robotics, biotech and other fields. American leaders say those violate Beijing's market-opening promises and might erode U.S. industrial leadership.

The response highlights the cost the ruling Communist Party is willing to pay in lost sales and jobs to stick to plans that are fueling conflict with Washington, Europe and other trading partners.

The Chinese government on Monday formally asked the World Trade Organization for "dispute consultations" with the United States over the Trump administration's imposition of $16 billion in tariffs on Chinese goods last week. China has responded with similar taxes on U.S. goods.

"China sees its technology and industrial policies as fundamental to its growth," Tianjie He of Oxford Economics said in an email. "It is thus hard to see China's leadership committing to significant changes."

Trump has raised duties on a total of $50 billion of Chinese imports including ultrasound scanners and industrial components that Washington says benefit from improper policies. China retaliated with similar penalties.

The U.S. is poised to raise duties on $200 billion of imports including the gloves made by Ren's company. Beijing has issued a list of American goods for retaliation.

The impact on China is "small and is containable, at least for the time being," said Vincent Chan of Credit Suisse. He said the "worst case" outlook if all threatened U.S. tariff hikes go ahead would cut China's growth by 0.2 percentage points this year and 1.3 percent in 2019.

Chinese leaders have tried to cushion the blow to their own economy by targeting American goods its importers can get from other countries -- soybeans from Brazil, gas from Russia, cars from Germany and fish from Vietnam.

Beijing has promised to use revenue from the higher tariffs to help struggling exporters and has ordered banks to lend more freely to them.

The biggest jolt so far came from Beijing's cancellation of orders for soybeans, the biggest American export to China at $21 billion last year. That hammered farm states that voted for Trump in the 2016 election. It also pushed up prices for Chinese farmers that use soybeans for animal feed and food processors that crush them for cooking oil.

That could be a windfall for Brazil. But China already is its top market and consumes two-thirds of the global supply. Chinese total imports last year of 95 million metric tons were 50 percent more than the South American giant's entire exports.

"The Chinese can talk all they want about finding other sources of soybeans," but 80 percent come from the United States, Brazil and Argentina, said Michael Cordonnier, president of Soybean & Corn Advisor Inc., a U.S. research firm.

"If you want to import soybeans, it generally must be from one of those three countries," Cordonnier said in an email.

Regulators also cut import duties on automobiles on July 1 but raised them on vehicles from the United States. That helps luxury brands that import from Germany and Japan.

Replacing markets for Chinese exporters that support tens of millions of jobs will be harder.

The United States bought $430 billion of China's exports last year, or 20 percent of the $2.2 trillion total. The No. 2 market was the 28-nation European Union at $370 billion.

"We can't afford to lose the U.S. market," said David Hu, general manager of Sinohood Bags Factory Ltd. in the southeastern city of Yiwu.

Americans bought 40 percent of his canvas tote bags last year, including the most profitable customized versions with Christmas and other designs.

"What we export to Europe is lower-end products with lower prices," said Hu. "We could explore the Indian, Vietnamese or Philippine markets. But the prices they offer would be too low."

Chinese officials point to potential markets in the "Belt and Road," a multibillion-dollar initiative led by President Xi Jinping to boost trade by building ports, railways and other infrastructure across Asia to Europe.

That has brought a flood of contracts to Chinese state-owned builders but complaints about costs have hurt its appeal. Prime Minister Mahathir Mohamad of Malaysia announced this month the cancellation of plans for Chinese-built projects including a $20 billion rail line.

"There is potential for development in areas such as central Asia, Eastern Europe, Africa and South America. But their problems are development imbalance and economic instability," said Li Yong, a senior fellow at the China Association of International Trade, an industry group.

Local officials have met with exporters to exhort them to "diversify markets," according to the state press.

Information for this article was contributed by Yu Bing of The Associated Press.

Business on 08/28/2018

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