China's clout seen in resource markets

BEIJING, June 30 (UPI) -- Two recent developments help to understand how China's growing stature in global trade will determine the future of the intensifying scramble among major players for the world's valuable resources.

In the first development, which relates to Chinese exports, both the United States and the European Union lodged separate complaints this month with the World Trade Organization, saying Chinese quotas on some of its raw materials and tariffs are in violation of WTO rules.

The quotas, which benefit domestic industries such as chemicals, steel and aluminum, cover exports of critical items such as bauxite, coke, magnesium, zinc and silicon metal in which China leads world output.

The other relates to China's huge appetite for high-grade iron ore imports to feed the steel mills even as its poor-grade domestic output declines amid rising costs and mine closings. The tussle here is between China, the world's largest importer, and Australia and Brazil, the world's largest exporters.

Both these developments stem from China's emergence as an economic powerhouse, which has helped its global trade to burgeon and trade surpluses to skyrocket, in turn, making the country the world's largest holder of foreign exchange reserves estimated at about $2 trillion and the largest creditor to the United States.

Though its exports have been hit by the current global financial crisis, China's demand for raw materials, energy and other resources shows no signs of abating.

In fact, the demand is expected to shoot up as the Chinese government implements its $586 billion package to stimulate the economy with emphasis on domestic demand to reduce reliance on exports. The program's "buy Chinese" message is seen by some as discouraging foreign firms from competing for the contracts in the package.

Much of the package will go for infrastructure projects, requiring massive doses of raw materials such as iron ore and the other materials that are the subject of the latest U.S. and EU complaints.

"China's policies on these raw materials put a giant thumb on the scale in favor of Chinese producers," U.S. Trade Representative Ron Kirk was quoted as saying.

In the EU complaint, the European Commission explained Chinese export restrictions on these items could impact 4 percent of the EU's industrial output, or about half a million workers. The EU imported about $6.3 billion worth of these materials from China in 2008.

"Restrictions on raw materials give Chinese companies an unfair advantage, as downstream industries in China have access to cheaper materials than their competitors outside China," the EU Trade Commission said, CNN reported.

In responding to the WTO complaints, China asserted its export restrictions on these commodities are for protecting the environment and natural resources, which are in keeping with WTO regulations.

China also countered with its own complaint about U.S. import restrictions on Chinese poultry products, the Financial Times reported. The two stopped taking each other's poultry in 2004 because of bird flu cases, the report said, adding China subsequently lifted its ban but that the United States retained it because of concerns both about the virus and health and safety scandals in China.

China also has begun its own anti-dumping investigation into methanol imported from Saudi Arabia, Malaysia, Indonesia and New Zealand, the Times said.

Unlike in the past when such issues were settled without fanfare, China's current responses may indicate the country, given its economic clout, is determined to fight these complaints to the finish.

On the iron ore issue, which impacts its imports, China has been seeking price cuts from suppliers in Australia and Brazil for its steel mills. China's main suppliers are Australia's BHP Billiton, Anglo-Australian Rio Tinto Group and Brazil's Vale, which have already made deals with Japanese and European steelmakers at higher prices.

But China's case needs to be handled carefully as it is one of the world's largest steel makers, and demand for iron ore is expected to go up sharply even though the Chinese industry currently is seeing its profits decline.

To further complicate the matter, China this week announced the discovery of a massive iron ore deposit with estimated reserves of 3 billion metric tons, described as the largest in Asia.

The deposit found in Benxi city in the northwest province of Liaoning reportedly could be exploited for 50 years. It would help China reduce its import costs and encourage it to invest in new mining projects in Australia.

China's growing influence is also felt in the aluminum sector, where it is the world's largest producer. The government reportedly has raised tax rebates on some exports to make up for some of the decline in shipments.

In the area of energy, China took a giant leap forward recently as Sinopec, its largest refiner, planned a takeover of Addax Petroleum of Geneva with a price tag of more than $7 billion. China Daily reported Addax's oil and gas assets are mainly in Nigeria and other parts of oil-rich West Africa and also in the Middle East, which includes Iraq.