BWorld 224, China mercantilism and US free trade challenge

* This is my article in BusinessWorld last June 20, 2018.

There seems to be a predominant sentiment to demonize the United States.

These sentiments are variations of a theme, which include: a) “US protectionism” vs G7 nations, the European Union (EU) and China; b) US is a declining power while China is now the “new vanguard” of globalization; and (c) US withdrawal from the Paris Agreement is adverse unilateralism while China or Germany is the new leader of the “save the planet” movement.

These sentiments are based on illusion and emotionalism than hard data and propelled more by anti-Trump hysteria and pro-China wishful thinking in its Belt and Road Initiative (BRI).

Here are the numbers that show why these assertions are based on illusion than reality. These data sources are (a) GDP: IMF, World Economic Outlook database, April 2018; (b) Tariff rates: Fraser Institute, Economic Freedom of the World (EFW) 2017 Report; (c) Coal use in million tons oil equivalent (mtoe): BP, Statistical Review of World Energy, June 2018.

Tariff rates’ standard deviation of tariff rate means the degree of tariff variation, the higher the standard deviation, the more protectionist an economy is for certain merchandise goods and commodities.

Covered here are the world’s six biggest economies in terms of GDP size, current or nominal prices. The Philippines is added to help compare our GDP size, trade and energy/climate policies.

These numbers show the following:

One, the US remains the biggest economy in the world despite anemic growth over the past decade (for instance, not one of the eight years of “hope and change” that the US economy grew 3% or higher). Its GDP size is nearly equal to the combined size of China, Japan, and Germany, the second-, third-, and fourth-largest economies.

Thus, to say that the US is a declining anchor of globalization is based on illusion.

Two, the US has the lowest average tariff rates in the industrialized world, has much lower rate, nearly one-third (1/3) that of China. Thus accusing “US protectionism” and implying that the rest of G7, EU, and China are non-protectionist is again based on illusion and not hard data.

Three, US withdrawal from the Paris Agreement is a wise move as China and India are the world’s biggest consumers of coal power, a favorite whipping commodity of the “save the planet” movement.

In 2017, China’s coal consumption was more than five times larger than the US; even India’s use was larger than the US.

On a related note, it is wrong for the anti-coal groups in the Philippines to call for further coal restriction since our coal use is very small even compared to “green” Germany and Japan, and much smaller than those of India and China.

China’s BRI can be considered more as a mercantilist project than a free trade project. Mercantilism is a 16th to 18th century economic policy that viewed more exports and less imports — more wealth accumulation via protectionism while having aggressive exports — as good policy.

Check China’s BRI information and these terms stand out:

• push further exports amidst slowdown in global trade;

• assist and promote troubled State-Owned Enterprises (SOEs) via lucrative projects abroad;

• enhance the absorption capacity of export markets in the emerging world;

• access to resource-rich nations in Central Asia, Middle East, Africa and Southeast Asia;

• globalize Chinese technological and industrial standards across emerging markets.

Dutertenomics’ build-build-build (BBB) with high involvement of China banks and contractors is falling along the China BRI mercantilism. This means the government’s build-build-build requires lots of loans-loans-loans from China and necessitates tax-tax-tax via TRAIN and succeeding tax laws.

The US’ zero tariff, zero subsidy challenge during the G7 Summit in Canada early this month is somehow addressed to China. As shown by the numbers, China is far out from going to zero and thus the Trump administration’s policy is equalized high tariff with China. Judging from current movement in global stock markets, China stocks in Shenzhen and Shanghai are experiencing heavy beatings. Very likely Xi Jinping will blink first.

Meanwhile, this June 20, the Stratbase ADR Institute, Inc. (ADRi) is hosting a roundtable discussion on “The 21st Century Silk Road: Perils and Opportunities of China’s Belt and Road Initiative” with Mr. Richard Heydarian as main speaker, with yours truly as one of the three reactors. Venue is the Tower Club, Makati City.

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See also:

BWorld 220, Trade imbalances, protectionism and rhetoric, June 15, 2018 

BWorld 221, Mindanao power development, reality vs illusion, June 16, 2018 

BWorld 222, Austrian thinkers and the G7 zero tariff challenge, July 8, 2018 
BWorld 223, Ease of setting up and closing down business, July 9, 2018

BWorld 145, Energy agenda of China’s Belt and Road Initiative

* This is my article in BusinessWorld on July 21, 2017.

In a presentation during the Asia Pacific Pathways to Progress Foundation, Inc. (APPFI) round table discussion on China Belt and Road Initiative (BRI) last July 11 at Astoria Plaza, Ortigas, APPFI president Dr. Aileen Baviera said that BRI is China’s new international development strategy. It will link China to the larger Asian region, Europe, and Africa through connectivity of policy coordination, facilities/infrastructure, trade/markets, finance (investments, loans, grants, AIIB), and people.

The Silk Road Economic Belt will span China, Central Asia, Russia, Europe while the 21st century Maritime Silk Road will span eastern China, South China Sea, Indian Ocean, Mediterranean, North Africa, Europe) + SCS-South Pacific and China-Europe via Arctic, covering 65 countries, 3 international organizations, 4.4 billion people and $21 trillion of trade.

Why is China doing this? Aileen said there are three main reasons.

(1) Economic -- put excess local production capacity and funds to profitable use, help develop Western China, and access to markets and resources.

(2) Political -- shore up domestic support for Xi (amid anti-corruption drive ad slowing economy), build platform for China to take leadership in the provision of global public goods, counter the China Threat Theory.

(3) Strategic -- avoid Malacca dilemma, make the South China Sea irrelevant in developing transport and trading links in the region, access to ports and airports reduces need for overseas air and naval bases, and compete with the US influence and perceived containment efforts against China.

This is incisive analysis from a local scholar. She also showed maps of the Silk Road Beltway, the Maritime Road covering the three continents of Asia, Europe and Africa, and the Pan-Asia railway network.

In many discussions on China’s BRI, often left out is China’s energy agenda that spans practically the same continents and countries. Here are just three of several reports on this aspect.

(1) From NY Times, July 1: “When China halted plans for more than 100 new coal-fired power plants this year… China’s energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

These Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald.”

(2) From China Dialogue, May 5: “Global Environment Institute (GEI) figures show that between 2001 and 2016 China was involved in 240 coal power projects in BRI countries, with a total generating capacity of 251 gigawatts. The top five countries for Chinese involvement were India, Indonesia, Mongolia, Vietnam and Turkey.”

(3) From Financial Times, March 31, 2016: “China’s proposed investments in long-distance, ultra-high voltage (UHV) power transmission lines will pave the way for power exports as far as Germany… Exporting power to central Asia and beyond falls into China’s ‘one belt, one road’ ambitions to export industrial overcapacity and engineering expertise as it faces slowing growth at home.”

Europe’s problem is that they are committing sort of energy mini-suicide by relying more on intermittent wind-solar and closing down many of their reliable and big nuclear and coal power plants. So here comes China with huge domestic coal supply capacity plus additional coal plants in countries along the BRI route. It will have the capacity to augment Europe’s energy needs via those UHV transmission lines and power sources are several thousand kilometers away (see table).

 Source: BP Statistical Review of World Energy, June 2017

* Less than 0.05.

Notice the huge discrepancy between installed capacity of wind-solar and China, and the very small actual electricity output from them.

In a forum on “The Framework Code of Conduct, One Year After Arbitration” organized by Stratbase-Albert del Rosario Institute (ADRi) last July 12 at the Manila Polo Club, among the speakers were Roilo A. Golez, former National Security adviser; Antonio T. Carpio, senior associate Justice, Supreme Court of the Philippines, and Dr. Jay Batongbacal, director of UP Institute for Maritime Affairs and Law of the Sea.

Justice Carpio highlighted the energy aspect of China’s occupation of shoals and creation of artificial islands in the South China Sea or West Philippine Sea, and the huge implication for the Philippines if China will occupy areas near Malampaya, currently the source of about 3,000 MW of natural gas plants based in Batangas. Malampaya natural gas is expected to be exhausted around 2024 or less than a decade from now. We shall have massive, daily blackouts for many hours daily if no new gas is discovered or new gas facility is created.

China has a different agenda in its massive BRI project, some are useful, some are harmful to their partner countries. The Philippines should craft foreign affairs and energy policies that will secure the country’s economic needs, not China’s needs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

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See also:
BWorld 142, PPP vs ODA, Part 3, August 08, 2017 
BWorld 143, Coal power and economic development, August 09, 2017 
BWorld 144, Individual liberty vs state coercion and taxation, August 10, 2017