China's clout seen in resource markets

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.

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