China and the EU Face a Summer of Discontent. China’s surplus is 1% of the rest of the world's GDP
Issue 154, Monday 15th July 2024
As we reported in the SOAPBOX issue of July 1st, China was considering a set of countermeasures against the EU's Foreign Subsidies Regulation. The pre-announcement came via the business lobby that China maintains in Brussels (en.ccceu.eu).
On July 10, China's Ministry of Commerce confirmed that:
has decided to conduct a trade and investment barriers investigation on the relevant practices adopted in the EU Foreign Subsidies Regulation investigation from 10 July 2024.
The investigation should be completed by 10 January 2025 and may be extended until 10 April 2025 in exceptional circumstances.
The Ministry of Commerce may use questionnaires, hearings, on-site investigations, etc. to obtain information from interested parties and conduct investigations.
As for trade, Chinese exports in the first half of 2024 aligned with our previous forecast.
The most striking aspect of China’s trade is that it siphons 1% of the rest of the world's GDP, and it has been doing this for the last five years. There are no expectations for changes in policy at the Third Plenum, with ideology and supply-side measures continuing to be prioritized to manage unemployment, despite having a weak safety net and sluggish consumption, resulting in citizens effectively subsidizing exports.
EU, U.S., and Others Renew at WTO Their Doubts on the Transparency of China’s State Trading Enterprises
At a recent WTO meeting, several WTO Members continued to press China on the sufficiency of its notifications related to state-trading enterprises.
The categories whose trade is controlled by these entities are in the table below.
China claims it needs to keep the state trading enterprises
To ensure stable supply of products subject to state trading, prevent consumers' interests from being affected by drastic price fluctuations, safeguard food security of the nation, protect exhaustible and non-recyclable resources and the environment, and achieve the goal of sustainable development
The EU to Reduce Dependency on Gallium Supplies from China
Following the export restrictions on gallium imposed by China a year ago, the EU is seeking to lessen its reliance on powdered gallium imports from China, which were nearly 100% in 2022. Our projection indicates that by 2024, these imports will constitute just one-third of the total. However, the EU faces challenges in finding alternative suppliers. Despite tripling imports from other countries, this increase falls short of compensating for the 50% reduction in Chinese imports.
For 2024, we anticipate the EU will import 23 tons of gallium powder, with only 8 tons originating from China. Nevertheless, achieving total import levels similar to those of 2022 (51 tons) will prove challenging if sourcing from China is avoided.
Wine and the Economy
The dynamics of the European Union's wine exports to China partly explain why wine has not been mentioned among the potential categories for Chinese retaliation against the EU. Wine exports to China have dropped significantly since their peak in 2017. This decline happened before the COVID-19 pandemic and before the ban on Australian wine imports. It largely reflects the trends in the Chinese economy rather than other factors.
Wine in China is an on-premises thing; cautious Chinese citizens keep their purse strings tight.
Interestingly, the Chinese government appears to be implementing an austerity drive, cutting costs wherever possible, even on small items such as notebooks and pens.
Overcapacity in China
In our May 27 issue, we reported that while an unflinching Xi Jinping told Von der Leyen that 'there is no overcapacity in China,' the China Photovoltaic Industry Association (CPIA) called for action to reduce the downward spiral of prices and overcapacity, aiming to stop what they labelled as vicious competition.
Well, on July 9, China's Ministry of Industry and Information Technology (MIIT) issued a draft rule requiring photovoltaic (PV) enterprises to reduce excessive photovoltaic manufacturing projects that simply expand production capacity amid efforts to guide the healthy development of the industry, or, in other words, to stop the vicious competition.
Another meaning for overcapacity is that the more they sell, the more they lose.
China's E-Car Exports Lose Steam Compared to ICE Cars in June
While combustion car exports increased by 33% year-over-year in June 2024, electric car exports increased substantially less, by 12%. Total auto exports increased by 28% in units compared to the same month the previous year. However, overall exports remained flat compared to the preceding month of May.
Chinese Fever for Storing Value in Gold
China Grants Russia Top Spot Among Crude Oil Suppliers After Ukraine Invasion
Crude Oil Trade Games
Despite China reporting zero imports of crude oil from Iran, Iran has announced an eight-month high in its crude oil exports to China.
Conversely, while Malaysia reports no crude oil exports to China, Chinese data from January to May 2024 indicates imports of 1.7 million barrels per day from Malaysia. Accusations of ship-to-ship transfers of sanctioned Iranian oil off the coast of Malaysia emerge every now and then.
As for China, it categorizes its crude oil imports from Malaysia as in transit (保税监管场所进出境货物). These purchases are primarily made by independent refiners in Shandong province, commonly referred to as "teapots."
This year, there has been a reshuffle in China's list of crude oil suppliers. Check it out
China’s Voracity for Copper Ores
China demands over 60% of the world's copper ores.
The Logistics of EU Imports from China
On average, the goods the EU imports from China are valued at €7/kg
Meet BYD Explorer No.1
The first of eight Ro-Ro ships ordered by BYD and built by CIMC Group, a subsidiary of COSCO, a Chinese state-owned enterprise, is able to transport about 7,000 cars.
Platinum, Palladium: A BRICS Thing
The Guangzhou Futures Exchange (GFEX) plans to launch its first platinum and palladium futures contracts in China. Whether it's worth the effort remains uncertain, as more than 90% of China's palladium imports and two-thirds of its platinum imports come from two BRICS partners: Russia and South Africa.
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