China Wants To Break The Trade Circle

With the rapid development of China's economy, "Chinese buyers" are increasingly affecting the price trend of global commodities.

Unfortunately, its influence is only reflected in demand pull, and its price influence is very small. Only passive acceptance of the international market price has actually become the weakness of China's foreign trade.

Mei Xinyu, a well-known foreign trade expert, pointed out that in order to protect the legitimate interests of Chinese enterprises, China must change the coexistence of big trading countries and small pricing countries. We must break the strange situation of "what China buys, what the international market will go up, what China sells and what the international market will fall."

China's manufacturing is "impoverished growth"

Q: some people ridicule, "what China wants to buy, what will rise; what China will sell and what will fall".

Do you agree with this statement? What are the main areas of China's lack of pricing power in international trade?

Mei Xin Yu: This is not ridicule, it is a fact.

China's lack of pricing power in international trade is very extensive, ranging from primary products to manufactured goods.

In addition to oil, iron ore and corn, non-ferrous metals, rare earth, cotton, soybeans, textile and clothing, electronic products and other finished products all have this problem, but the degree is different.

Q: how does this phenomenon affect China's economy?

Mei Xin Yu: due to the lack of pricing power, Chinese enterprises were forced to accept the sharp rise in prices when importing large commodities, but when exporting large commodities, they had to face low quotations from international buyers.

In the process, Chinese enterprises have suffered huge losses, and many industries have been hit, which has greatly affected the stability and sustainable development of China's economy, making China's manufacturing growth and the development of China's export trade suffer from "impoverished growth".

Dollar surge pushes asset prices up

Q: why does this happen? Is "China's demand" the "culprit"?

Mei Xin Yu: with the progress of domestic industrialization, China began to pform from net primary product and net importer of manufactured goods to net importer of primary products and net exporter of finished products from the middle of 90s of last century.

The import volume of primary products increased year by year, and the proportion of total imports increased significantly, mainly reflected in two categories: non edible raw materials (excluding fuels), mineral fuels, lubricants and related raw materials.

China is the largest importer of other resources such as copper ore, manganese ore and sand. It can be said that China's demand for raw materials for bulk primary products has skyrocketed, which is an important basis for the price rise of these varieties in the international market in the past 8 years.

In addition, the following factors drive price increases and weaken China's pricing power in international trade.

The most fundamental factor is the continuous implementation of the ultra loose monetary policy of the main central banks in the west, especially the Federal Reserve, which has led to the flooding of the US dollar in the global market, which determines that the price of the bulk primary products priced in the US dollar is bound to rise.

Moreover, as the strength of western institutional investors has intensified, the utilization of financial attributes of commodities has reached a peak. This has further intensified the trend of rising prices of bulk primary commodities.

{page_break}: according to your understanding, is it not a simple trade issue or a financial and monetary issue?

Mei Xinyu: we need to see the essence of inflation beyond the representation of the pricing power of international trade. The price rise of China's imports of primary products occurs under the background of global inflation. Inflation is, in the final analysis, a monetary phenomenon, to a large extent, the manifestation of excess liquidity.

The excess liquidity in the world can also be traced back to the loose monetary policy of the western countries in the past few years. The Japanese bank's zero interest rate cut interest rates 13 times from January 2001 to June 2003.

Despite the interest rate hike of the developed countries in the first two years, the rescue of the market after the subprime crisis has led to a sharp increase in the liquidity of the financial market. The Central Bank of the United States, Europe and Japan has injected hundreds of billions of dollars into the market.

On the one hand, massive capital injection and interest reduction indirectly expand the final demand, and on the other hand, directly increase the supply of speculative capital in the commodity market. Speculation in speculative capital is the main reason to push commodity prices up.

Secondly, due to the different bargaining power of the supplier and the buyer in the international market, the pricing power of China's international trade is missing.

In the field of primary products, quite a number of suppliers have already formed the pattern of oligopoly of some large multinational companies. China is a demand side with tens of thousands of importing enterprises. In many manufactures, there are few foreign buyers to tens of thousands of Chinese exporters, such as WAL-MART on Chinese consumer goods manufacturing enterprises.

Under such a negotiation situation, our negotiating position is bound to be weak, and the problem of lack of trade pricing will correspondingly arise.

Q: Since China is a "super buyer", it should theoretically have the initiative to negotiate. Why did the voice on the international trade negotiation table fail to expand synchronously?

Mei Xinyu: the formation of the above pattern has profound historical and geographical roots.

In the field of primary products, China is a resource poor country. Western multinationals have formed monopoly power on many primary products markets on the basis of three hundred or four hundred years of colonial rule. Canada and Australia are rich resources of Anglo Saxon countries. Many resource rich developing countries are held by Western companies in key links such as exploration, exploitation and marketing.

After World War II, under the impact of the socialist revolution and the national liberation movement, this monopoly power had been shaky. But after the heavy losses of the socialist camp in the 80s of last century, the monopoly power has been restored and strengthened, and the struggle for the new international economic order has fallen into silence.

In this regard, it is impossible for us to quickly reverse the status quo.

Fighting for pricing power requires five misunderstandings.

Q: Chinese enterprises began to go out to buy resources several years ago, and learn to use the WTO rules to carry out anti-monopoly, hoping to get rid of the passive situation of being controlled by pricing power, but now it seems to have little effect.

What gains and losses can we sum up?

Mei Xin Yu: in striving for the pricing power of international trade, we need to get rid of the misunderstanding of ideological understanding and set the right goals.

The first mistake is to talk about pricing power on pricing power, without seeing the global macroeconomic trend behind it.

As I mentioned above, we need to see the essence of inflation beyond the representation of the pricing power of international trade.

To effectively reduce import costs, it is useless to focus only on the development of the futures market and other branches. To carry out international macroeconomic policy coordination and reduce excess liquidity from the source is the solution.

Under the established pattern of global inflation, our goal should not be to maintain the original low price of imported primary products, but how to share the interests of the bull market of primary products and raise the prices of our manufactured goods as much as possible.

There are similar problems in the field of finished products.

China's electronic products are large export commodities, but the rapid upgrading of electronic products has led to a sharp decline in prices. This has become a basic feature of this industry. If we take the objective of pricing power for international trade as a fundamental feature to change the industry, then I am afraid I will be at the wrong place.

The second mistake is to operate in a pro cyclical manner, that is, buying resources in large quantities on the occasion of the bull market of primary products. This is not entirely wrong, but it will cost us a lot and face great resistance.

We need to implement anti cyclical operations over a longer span of time, that is, large-scale resource acquisitions, reducing costs and reducing resistance at the end of the bull market.

I think this round of bull market for primary products has been 8 years. How will it end? How will the parity between manufactured goods and primary products change? This is a matter of concern.

The third mistake is to set too high a level of protection.

We should ensure that the supply of resources for domestic final consumption is not for the final supply of foreign resources.

The resources we can use are limited, and we spend more resources for our misguided goals.

The fourth mistake is to be eager for success.

As I have said before, we can not expect to radically change the pattern of colonial rule in three hundred or four hundred years.

The fifth problem is that we are not doing enough in promoting the proper concentration of foreign trade enterprises' management rights.

{page_break}: you just pointed out that China has "lost its voice" in the fight for pricing power in almost all international trade areas such as raw materials, primary products and finished products.

So, what areas should be chosen first as a breakthrough to raise the pricing power?

Mei Xinyu: first, we need to start with a larger demand, a certain foundation for our country, and a monopolist abroad.

For example, oil, Saudi Arabia, Iran, Russia and other major oil producers and exporters of oil and natural gas production are monopolized by the state. Let us not point to the anti monopoly targets in these areas.

We have the basis of soybean and rare earth. The main monopolist of iron ore is private enterprise.

Using the anti monopoly law cautiously as a weapon

Q: Yao Jian, a spokesman for the Ministry of Commerce, put forward "to learn to make effective use of the anti-monopoly law and WTO rules to counter the behavior of international ore producers using monopoly to manipulate the market".

What do you think of this?

Mei Xin Yu: anti monopoly is not a rule of WTO. I am against the introduction of anti monopoly issues into WTO rules, which is not good for us. What we need to do is to balance the monopoly giants of overseas countries with antitrust laws as domestic laws.

Q: will the question of pricing power rise to the level of "national strategy" to help speed up the solution? Should we explore a solution that covers short term, medium term and long term?

Mei Xin Yu: in order to solve the plight of China's lack of pricing power in international trade, a working group led by the relevant departments of the State Council, mainly based on the Ministry of Commerce, and many departments involved in the securities and Futures Commission and the people's Bank of China, are working on the issues concerning the formulation of relevant commodity trading regulations and the settlement of imperfect legal issues in the paction.

However, detailed and detailed solutions can not be formulated at once, and must be enriched and perfected in practice.

There are several things we need to do at the moment: first, we must curb excessive inflation and the rising trend of primary commodity prices through global macroeconomic coordination.

The second is to share the profits of primary products through overseas investment.

But we need to pay attention to counter cyclical operation.

Third, formulate appropriate level of protection objectives.

Fourth, develop the industry of substitute products and weaken the monopoly power of some monopolistic giants of overseas primary products.

Fifth, we should use antitrust tools to curb overseas monopolies.

Sixth, we should appropriately promote the concentration of business rights so as to enhance our ability to negotiate foreign trade.

It is important to note that the anti-monopoly law can not be a tool for breaking hands and feet, and can not weaken itself in the name of "anti monopoly", and this risk exists from the unreasonable siege of domestic oil companies in recent years.

Futures market has risk of pricing power.

Q: many people propose to use financial means (such as futures market) to solve the pricing power of Chinese commodities.

Is this road feasible?

Mei Xin Yu: to some extent, it is useful, but it has limitations. It is mainly used to guarantee a larger share of interests in our country, and the risk is also objective.

Therefore, this tool can only be used on the basis of measures such as increasing control resources, but it can not be simply depended on this tool.