Ideology vs profit; Colombia and Venezuela's trade dispute gets nasty

Economist Article --

Venezuela and Colombia -- Politics versus trade

Sep 10th 2009 | SAN ANTONIO DEL TÁCHIRA
From The Economist print edition
Hugo Chávez stamps out regional economic integration

BUSINESS is slack at José Nelson Uribe’s tiny grocery store in San Antonio del Táchira, just a stone’s throw from Venezuela’s border with Colombia. “I’m not selling even a quarter of what I sold before,” says Mr Uribe. His woes are a result of the political conflict between his namesake, Colombia’s president, Álvaro Uribe, and Venezuela’s Hugo Chávez. “Before” means before July 28th, when Mr Chávez declared a “freeze” on diplomatic ties and said he would seek alternatives to Colombian goods. This was officially a response to an agreement formalising American use of seven Colombian bases for anti-drug operations, but it also coincided with questions as to how anti-tank rocket-launchers sold by Sweden to the Venezuelan army ended up in a camp belonging to the FARC guerrillas in Colombia. It is not the first time that Mr Chávez has threatened trade sanctions, but this time he seems serious.

The impact on the border region was swift. For each country, the other is the second-biggest trading partner (after the United States in both cases). Bilateral trade totalled $7.2 billion last year, of which $6 billion consisted of Colombian exports, mainly of food, live animals, clothing and cars. Four-fifths of that trade passed along the twisting mountain road that links San Antonio with the state capital, San Cristóbal. “That represents 50,000 direct jobs and 250,000 indirect [ones],” says José Rozo, a local business leader. Many of these are in transport firms and customs agencies. “Before, the local lorry drivers were doing around 500 trips a day,” Mr Rozo says. “Now it’s down to about 80.” Industry in Táchira has been hit too, since many companies depended on imports from Colombia.

The border is not closed. But few of the 30,000 Colombians who used to cross each day to shop do so now, because Venezuela’s National Guard confiscates their goods when they recross the border, says Mr Uribe, the shopkeeper. Venezuela’s government has stopped issuing import permits, nor is it providing dollars at the official exchange rate for imports from Colombia (a dollar costs almost three times more on the parallel market)...

Click here to read the complete article from the Economist

China becomes L America's privileged partner: ECLAC official

Xinhua news reports,

China has become a "privileged partner of Latin America," and the region needs to define a joint strategy to develop its ties with China, an official of the Economic Commission for Latin America and the Caribbean (ECLAC) said Wednesday.

The "post- (economic) crisis will find a bigger and more important China than the one it has been in the world economy," said Osvaldo Rosales, ECLAC's director for international trade and integration.

Citing the World Trade Organization's report on Tuesday that China had displaced Germany in the first half of 2009 as a leading exporter, Rosales observed that "this has been reflected in its (China's) growing relative presence in the world's trade, mainly in Latin America."
"The numbers of destinations and exporters show that China has become a privileged partner of Latin America," Rosales told Xinhua in an interview.

This was because the Chinese government had "already defined the strategy for Latin America in its white book," Rosales explained, adding that the region needed to do the same.

Regarding bilateral trade relations, Rosales worried about Latin America's export structure, which focused on a few products and natural resources. He called for a diversification of the export basket.

"Latin America is in some ways linked with China, the world economy's engine of the 21st century, but it is doing that with an export structure from the 20th century," Rosales observed.

Click here to read the full story from Xinhua

Peru lowers interest rates to 2.5%

Peru's macro economic picture is not as hot as one might think from
watching Bloomberg anchors on live TV talk up how the country's stock
index is one of this year top performing, year to date. Ironically
the following excerpt is also from Bloomberg
(http://www.bloomberg.com/apps/news?pid=20601086&sid=a0pA8xgoGZi8)

Peru's central bank will probably cut its benchmark lending rate for a
sixth month today after consumer prices fell for a second month and
the economy shrank for the first time in almost eight years.

The seven-member board, led by bank President Julio Velarde, will
lower its reference rate by a half-point to 2.5 percent from 3
percent, according to 11 of 20 economists surveyed by Bloomberg. Nine
analysts expect a one-point cut.

The global financial crisis has blunted demand for Peru's exports and
sapped domestic spending, reining in economic growth and consumer
prices. The economic slump, deflation and local currency gains will
push the bank to extend its longest rate cutting cycle on record, said
Neil Shearing, an emerging markets economist at Capital Economics Ltd.

"There's been very aggressive action across the region to combat this
slump," Shearing said in a telephone interview from London. "Cuts will
continue, but will probably slow to see the effects of earlier
rate-cutting."

--
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Benito
International Trade Consultant
Mir Global Marketing LLC
http://www.mirglobalmarketing.com
http://www.chinasouthamerica.com

China to launch iron ore trading platform - AP

China will launch its first iron ore trading platform next week in a move that may lead to setting up its own pricing index and possibly exerting more influence over import costs, an official and reports said Friday.


The Rizhao International Iron Ore Trade Center will begin providing electronic commercial services for iron ore suppliers and steelmakers on Monday, said Liu Qiang, sales manager of Shandong Huaxin Trading Co., which is heading the project.

The center, a joint venture by Shandong Huaxin and four other local companies involved in bulk commodity dealings, will handle electronic transactions, information exchange, quality inspection, storage, transport, insurance and trade settlement, Liu said.

The center will act as a clearinghouse for information on iron ore trading, Liu said.

"As it gains influence in the long-term, it may have some influence on price negotiations," he said.

Rizhao, a port in eastern China's Shandong province, is one of the country's biggest handlers of iron ore imports.

The trading platform would likely mainly serve China's numerous smaller steelmakers. They buy independently from the biggest mills and do not pay the same benchmark prices the big steelmakers agree to each year in sometimes tortuous negotiations with overseas miners like Brazil's Companhia Vale do Rio Doce SA and global miner Rio Tinto Group.

Meanwhile, the annual negotiations with overseas iron ore suppliers dragged on, according to the government-affiliated China Iron & Steel Association, which vehemently denied reports that Chinese steelmakers had settled for 30 percent to 35 percent price cuts.

"China's steel industry and those of Japan and Korea are facing severe shocks from the global financial crisis," CISA said in a statement posted on its Web site. It said the annual negotiations were continuing on a basis of "mutual interest and long-term stability."

Unlike in previous years, when Shanghai-based Baosteel Group led the talks, this year CISA is handling the negotiations. Analysts say it is seeking at least a 40 percent cut in this year's benchmark prices.

China imported 444 million tons of iron ore in 2008 - half of the volume of all imports worldwide, according to government figures. Imports in January through April surged to 188 million tons, as traders took advantage of lower prices to build up stockpiles.


Iron ore pricing has long been a point of contention between China, the world's biggest steel producer and consumer, and foreign raw materials suppliers.

Such friction intensified in recent years as surging demand due to the booming economy and speculative buying drove prices for iron ore and other commodities higher.

But a slowing in industrial production due to the global economic crisis has raised expectations that Chinese and other steelmakers may win big concessions in this round of talks after yielding to demands for double-digit increases in ore prices in previous years.

_

[Source] -- Associated Press researcher Ji Chen contributed to this report.

Brazil's president arrives in Beijing

[South-South Cooperation] -- China, Brazil -- Al Jazeera

Lula arrives in China - [Reuters]

Brazil's president has arrived in China for three days of talks expected to focus on broadening ties between two of the world's largest developing economies and moves to decrease their dependency on the US dollar.

The visit by Luiz Inacio Lula Da Silva is his second in 12 months, highlighting the importance of China which recently overtook the US as Brazil's most important trading partner.

On Tuesday Lula will hold talks with his Chinese counterpart, Hu Jintao, as well as host a bilateral business forum and visit an aircraft factory.

Speaking ahead of the visit he said he was looking to the trip to promote "a new economic order", while an official from the country's foreign ministry said a theme of the talks would be a "reorganisation of the international scene".

...

Al Jazeera's Tony Cheng reporting from Beijing says the main point of discussion during Lula's visit will be on Brazilian energy resources which Beijing, with reserve funds to spare, was keen to exploit.

...

Brazil's two-way trade with China, one of the few economies still growing strongly despite the global crisis, reached $3.2bn in April, surpassing the $2.8bn trade total with the US.

So far this year, government data showed that Brazilian exports to China grew 65 per cent over the same period in 2008, rising from $3.4bn to $5.6bn.

Click here to access the complete article from Al Jazeera

Economic forecasts - Chinese vs Western style

China Analysis: China economic forecasts: go herbal or Western? - Wei Gu



Reuters' Wei Gu wrote a insightful op-ed in today's news. He proposes a clever analogy in the form of a question:

"Which would you believe when it comes to diagnosing the health of China's economy -- the pulse taking of the herbal doctor or the lab tests of Western medicine?

When it comes to economic forecasts, Chinese planners favor using such economic indicators as shipping indexes like the Baltic Dry Index or more concrete measures of economic activity such as domestic power output / consumption.

Western forecasts on the other side tend to be based on more "mainstream" economic data such as money supply, loan growth and fixed asset investment.

Wei Gu argues such measures may not be as useful as experts in the West believe at measuring a transitioning economy such as China.

Gu elaborates his point by explaining that China is heavily dependent on the rest of the world for energy, therefore if energy output in China is increasing, it has to be buying it from somewhere. Raw output and consumption data offers a means in which to back check the accuracy of the data released from the Chinese government.

Gu writes, "Its beauty is that it is not distorted by inventories, is difficult to manipulate and is available almost real-time. Chinese banks routinely check the utility bills of their clients to make sure that factories are still busy."

Shipping offers another insight into the Chinese economy. Developed economies are generally more focused on service industries rather than manufacturing and exports. This helps to explain why Western economists favor looking at money supply and fixed investments.

However, considering Western economists remain a powerful influence in the global economy, it is important to pay attention to their own observations and forecasts.

This year, as Gu explains, the Baltic Dry Index "offers a less telling read on China's demand for raw materials because the State Reserves Board has embarked on a commodities buying binge. Thus commodity imports might just be sitting in the reserves instead of going to factories.

After China's money supply surged a record 25.5 percent in March as banks ramped up lending, foreign investment banks' knee-jerk response was to upgrade their forecasts for China GDP."

Perhaps this is a sign that an economic recovery -- which has caught the imagination of economists and investors but has yet to convince Chinese leaders -- is on the way, but its actual start might be later than what the market believes."

Click here to access Wei Gu's complete article

Newswire -- Testing out mobile posting (Go blackberry)

"Argentina’s 2008/09 crop exports forecasted to drop 56%"

Argentina’s cereals and oil seeds exports are forecasted to drop to 13.8 billion US dollars in this 2008/09 crop which means 56% less compared to the 31.9 billion of the 2007/08 crop according to a paper from the Argentine Agrarian Federation, FAA.

Mercopress


"China and India post manufacturing gains"

Surveys of industry executives registered positive results for the first time in months in April, offering evidence the global economy may be through the worst of its sharpest slump in six decades.

FT - Asia Pacific


"China becomes main destination of Brazilian exports ahead of US"

China has become the main purchaser of Brazilian exports during the first quarter of this year displacing United States which held the position undisputed for decades, according to reports in the Sao Paulo press based on the latest statistics.

MercoPress


"China denies anti-Mexican discrimination"

Foreign ministry insists confinement of scores of Mexican nationals over fears of the H1N1 flu are correct procedure, not bigotry.

FT - Americas


"Japan in $100bn aid offer to neighbours"

Japan offered $100bn yesterday in financial help to Asian states hit by the financial crisis in a move aimed at shoring up its regional economic leadership, despite...

FT - Asia Pacific

BoJ revises down growth forecast -- FT Asia

The Bank of Japan expects growth to contract by a significantly greater margin than it forecast just two months ago as the world’s second largest economy continues to suffer from a collapse in demand.
“Economic conditions in Japan have deteriorated significantly,” the BoJ said in a statement on Thursday as it lowered its forecast for the economy to a 3.1 per cent contraction in the year to next March, rather than a previously expected 2 per cent decline in growth.

Click here to access this FT Asia article

Singaporeans remain cautiously optimistic

A interesting article hit my WSJ reader this afternoon. From the title "Singaporeans stay buoyant in Asian storm," I was not too sure which direction the article would take.

Here's my take of the article.

The financial crisis has hit Singapore hard. The city-state after all is home to the largest container shipping hub in the world. When global trade slumped, inevitably so would the Singaporean economy.

The Financial Times in this article seems to agree with a observation I have made on my business trips to the city. The average Singaporean works very hard, earns a decent yet not absurdly salary, receives subsidized housing and generally speaking... LIVES WITHIN THEIR MEANS

Much like the average citizen, The city-state has also lived within its means. The Singapore Sovereign Wealth Fund is worth around $100 billion, which Singapore saved up during the good years.

This has transpired in the form of confidence, at least for Singaporeans that is. Foreign expats have ironically been the hardest hit by the crisis, suffering a major exodus after the fall of Lehman Brothers last year. Singaporeans on the other hand are holding up quite well, continuing to spend while waiting for a recovery.

“We suffered a fall in business, particularly among expats, after the collapse of Lehman Brothers in September. But the slack has since been taken up by locals who still have money to spend,” said Chris Churcher, the owner of the Red Sea art gallery.

Cem Karacadag, an economist at Credit Suisse in Singapore, said that Singaporeans are used to living within their means since he estimates half of the working population makes S$2000 ($1,354, €1,022, £914) or less a month in one of Asia’s most expensive cities. About 85 per cent of the population lives in publicly subsidised housing, leaving little risk of foreclosures.

“We are a resourceful people,” said Jeffrey Tan, who owns a small printing company. When business orders started drying up, he decided to take a part-time job as a taxi driver. “It is a flexible job so I have time to devote attention to my business when I need to. The only problem is that fewer people are taking taxis.” Mass transit use has risen as people try to cut costs on incidental expenses.


Click here to access the FT article which was used in writing this post.

International Trade Perspective from the Philippines

Developing countries in the region should avoid hiking barriers against imports and should instead deepen economic links with other poor nations to cope with the global economic downturn, a United Nations agency said.

The UN Economic and Social Commission for Asia and the Pacific (UNESCAP), in a policy brief, proposed such measures to "ensure that the region can minimize the negative impact of the current crisis."

A Philippine economist agreed with the recommendation to trade more with other developing countries but said demand might not be comparable with that of richer markets.

But a pro-industry group countered this, saying the Philippines should hike tariffs at least to the internationally agreed ceilings to protect domestic producers.

The UNESCAP report noted that "Developing countries still rely greatly on exports to the United States, the European Union and Japan to generate GDP (gross domestic product)."

"Using intraregional trade as a cushion against the contraction of exports to developed countries will depend on strengthening domestic demand and restructuring it to support intraregional trade," the report said.

Deepening "South-South" economic cooperation, or links between developing countries, may boost trade and also lead to the transfer of technology and technical knowledge, the UNESCAP report said.

To access this full article click here