The US, Europe, India and Australia have all been feeling the heat of ChinaÕs export-oriented economy

The healthy trade surplus that Russia enjoyed with China since bilateral trade started to grow rapidly in the early 1990s has suddenly turned into a gaping deficit.
According to Ipsnews.net, China’s export steamroller is wheeling across Russia, threatening to crush many domestic producers and strain bilateral relations.
The healthy trade surplus that Russia had enjoyed with China since bilateral trade started to grow rapidly in the early 1990s suddenly turned into a gaping deficit this year.
The two-way trade surged 42 percent in 2007 to reach nearly $33 billion, but the breathtaking growth rates today are a source of concern, rather than cheer in Russia. Imports from China jumped more than 80 per cent this year, while Russian exports grew less than 10 percent. As a result, Russia has run up a deficit of $4 billion, and the gap is fast growing--in the past few months, Chinese exports have been growing at 100 per cent year on year.
What worries Russian officials and economists even more is the changing pattern of bilateral commerce. While Russian exports are increasingly dominated by raw materials, China is expanding sales of manufactured goods and engineering products in Russia.
Energy resources account for half of the Russian exports to China, while the share of engineering exports dropped from 20 percent several years ago to 2 per cent today. At the same time, over a third of all Chinese exports are electronic and engineering goods.
For example, Chinese car sales in Russia in the first six months of this year soared six-fold over the past year. Even though, in terms of numbers, Chinese cars still account for less than 3.5 percent of the Russian market--40,000 out of the 1.2 million cars sold in Russia during January-June--experts warn that soon Chinese autos will not only oust the cheaper Russian Lada cars, but also offer serious competition to the more expensive Western models.

Highly vulnerable
Russia’s situation is by no means unique. The US, Europe, India and Australia have all been feeling the heat of China’s export-oriented economy. But the Chinese juggernaut poses a bigger threat to Russia than to many other countries. Russian industry is still recovering from the break-up of the Soviet Union and the painful transition from a centralized to a market economy, and is therefore highly vulnerable to competition from cheap Chinese imports. The 3,640-km common border is facilitating China’s conquest of the Russian market, with the economy of the Chinese frontier provinces singularly geared to meet the needs of the poorly developed Russian regions of Siberia and the Far-East.
Trade imbalances will top the agenda of Russian-Chinese talks when Chinese Premier Wen Jiabao visits Russia for economic talks this week. Moscow hopes to reduce its trade deficit with China by getting it to buy more engineering goods.
“The problem of raising Russian engineering exports to China will be a key item at the Second Russian-Chinese economic summit,“ said Russian Ambassador to China Sergei Razov.
The envoy revealed that the two sides would set up a trade chamber for engineering and innovative products in an effort to improve the structure of bilateral trade. However, officials doubt if such measures would be of much help.
Russia’s trade deficit “is a long-term trend that will define the development of bilateral trade in the foreseeable future,“ said Russia’s trade envoy to China, Sergei Tsyplakov. “Chinese goods are far superior to most Russian brands in terms of price and quality.“
Experts said Chinese producers had unfair advantages on the Russian market, thanks to support from the government. According to Yuri Saakyan of the Institute of Natural Monopolies, the Chinese government offered exporters various tax breaks, subsidies, easy-term credits, reimbursement of research and development, as well as retooling costs. He called on the Russian government to deny the most favored nation treatment to China.

Selective Protectionism
Moscow may not be prepared to take such harsh measures, but is resorting to protectionism in selected sectors. Thus, it has baulked at letting Chinese auto manufacturers set up industrial assembly plants in Russia even as requests from a dozen Asian, European and American auto giants have been granted.
Experts are urging the Russian government to evolve a coherent strategy in dealing with the Chinese trade expansion. According to A.V. Kuznetsov of the respected Institute of World Economy and International Relations, the government should devise effective mechanisms to support Russian exporters, build transport and other infrastructure along the border with China, attract Chinese investment in processing of Russian resources on Russian territory, and encourage cooperative ties between producers and exporters in the two countries.
Time is running out for Russia to rectify the situation. When it joins the World Trade Organization, which may happen in a year or two, it will have to slash customs duties on many imports. In the case of automobiles, tariffs will go down from 25 to 15 percent.

George BushÕs administration needs to do something about the dollar or risk an economic war.

You know that nerves are taut when a couple of stray comments set off a flurry of selling.
The dollar fell sharply on Wednesday November 7th after mid-ranking Chinese officials, not actually responsible for foreign-exchange policy, made remarks that were seized upon by already jittery markets.
According to Bloomberg.com, a Chinese parliamentarian called for his country to diversify its reserves out of “weak“ currencies like the dollar and another official suggested that the dollar’s status as a reserve currency was “shaky“. The greenback reached $2.10 against the pound and a new record of $1.47 against the euro, before recovering slightly. A widely traded index, which tracks the dollar’s value against six major currencies, also fell to a new low.
The sliding dollar, along with record losses from General Motors, the threat of $100-a-barrel oil and more bad news from the mortgage industry, spooked Wall Street. On November 7th the Dow Jones Industrial Average fell by 2.6 percent and the S&P 500 index by almost 3 percent. To add to the worries, Nicolas Sarkozy, France’s president, ramped up the political rhetoric on a visit to Washington.
Alarmed that the weak dollar boosts America’s competitiveness relative to Europe’s, he told Congress that George Bush’s administration needed to do something about the dollar or risk an “economic war“. Wall Street seers wondered whether official intervention to prop up the dollar was on the cards.
A true dollar crisis has long been one of the more frightening possibilities for the world economy. If foreign investors suddenly abandon America’s currency and the dollar collapses, financial markets could crash while the plunging currency constrains the Federal Reserve’s ability to cut interest rates. That fear is exacerbated by rising concerns about higher crude oil and food prices.
For now, the dollar nightmare is still unlikely. The currency’s decline is neither surprising nor, at least until this week, alarmingly rapid. The gaping current-account deficit and interest-rate differentials between America and other big economies point to a weaker currency. The Fed has cut short-term interest rates by 0.75 percentage points in the past two months. Given the scale of the credit mess and rising fears of recession, expectations are growing that the central bank will cut rates once again when its rate-setting committee next meets on December 11th.
Elsewhere, central bankers have stood pat or tightened. The Reserve Bank of Australia raised short-term rates to 6.75 percent on November 6th, citing inflationary pressure. The European Central Bank and the Bank of England, meeting on November 8th, both kept short-term rates on hold, at 4 percent and 5.75 percent respectively.
If cyclical considerations point to a weaker dollar, the most recent nervousness seems to be driven more by structural worries. Judging by the dollar’s slump in the wake of the Chinese officials’ comments, investors are fretting that central banks in emerging economies will abandon the ailing greenback. In the short term at least, that fear is easily exaggerated. The share of global foreign-exchange reserves held in dollars has fallen in recent years, but only gradually.
Central banks are unlikely to accelerate a dollar rout by making dramatic changes in their reserve portfolios. That said, many long-standing dollar bulwarks are looking weaker. Many countries that link their currencies to the dollar, from Arab oil exporters to China, face inflationary pressure. As the greenback slumps, these countries have ever-stronger domestic reasons to allow their currencies to rise.
So far, the dollar’s decline has caused little alarm among American policymakers. There is scant sign that the depreciation has aggravated price pressures. And inflation expectations, though up slightly, have not soared. Instead, the weaker currency, along with strong growth abroad, has boosted exports, helping to support output growth and unwind external imbalances faster than many thought possible.
America’s current-account deficit fell to 5.5 percent of GDP in the second quarter, from a peak of 7 percent at the end of 2005. For all the official talk of a “strong dollar“, most American policymakers have lost little sleep over the sliding greenback.
A dramatic fall in the dollar, however, would be a different story. If this week’s ructions are a sign of things to come, the weak dollar could become a big headache.

Mining firms are spending more each year on hunting down new reserves but this may not offset many years of underinvestment.

When Marius Kloppers succeeded Chip Goodyear as chief executive of BHP Billiton, an Anglo-Australian mining giant, he assured investors that their attitudes to mergers and acquisitions were “almost“ identical.
What he meant by that became apparent on Thursday November 8th when the world’s biggest miner admitted that it had “recently“ offered to buy Rio Tinto, another vast mining conglomerate, reported Economist.com.
Rumours of a tie-up between the two had swirled around the mining industry for some time but his predecessor never quite went as far as Kloppers. Such a deal would constitute one of the biggest takeovers of all time. Kloppers, who assumed the helm of BHP Billiton on October 1st with a reputation as an ambitious and aggressive dealmaker, did not wait long to show that he was ready to attempt a deal that will reshape the mining industry.
Rio Tinto was quick to reject a proposal that would create a mining company worth over $350 billion. The London-based firm complained that the all-share offer was not nearly generous enough. But excited investors pushed up Rio Tinto’s share price by some 30 percent in anticipation of a sweetened deal. BHP Billiton is unlikely to be put off at this early stage of the pursuit. Particularly as a combined entity would dominate the world mining business as a leading producer of copper, aluminium, uranium and coking coal as well as rivaling Brazil’s CVRD as the biggest supplier of iron ore.
BHP Billiton is in a strong position. All the world’s leading mining companies are in the midst of an unprecedented time of plenty. Metals prices have soared in recent years, mainly because of growing demand from China and other booming economies. That, in turn, has lifted mining firms’ profits and share prices. The result has been a wave of mergers as the industry’s bigger firms used their new-found wealth to buy up smaller rivals with the aim of diversifying, as a hedge if the good times turn bad, or strengthening their hand in specific metals.
The approach to Rio Tinto came just as the firm had concluded a deal to acquire Alcan, a Canadian aluminium firm, for $38.1 billion in cash. Perhaps now feeling the pinch, Rio Tinto said on Thursday that it would sell some or all of its sizeable American coal-mining interests. BHP Billiton, on the other hand, has largely stood aside from the merger frenzy save for the acquisition of WMC Resources, an Australian nickel and uranium miner, for $7 billion in 2005.
Kloppers’s audacious move makes sense. By some estimates the combined firm could make cost savings of $1 billion a year or more. And the bigger the mining company the more pricing clout it would have with Asian customers. Such a huge firm would be better placed to make the huge investments required in out-of-the-way parts of the world where vast new mineral deposits are generally found.
A deal would come with several risks attached. The dominant position that the new firm would enjoy is sure to attract the attention of competition watchdogs around the world. If a combined firm is forced to sell prized assets the shine may come off the proposed merger.
Another fear voiced by some in the mining industry is that the entire deal making has come at a cost. The supply of tempting takeover targets is finite. And while mining companies have concentrated on mergers, the exploration and development vital to finding new deposits of minerals to replace ageing mines has suffered.
Mining firms are spending more each year on hunting down new reserves--they stumped up a combined total of some $7.5 billion in 2006--but this may not offset many years of underinvestment. And the stripping out of costs that accompanies a merger often hits this part of mining businesses hard.
BHP Billiton has done more than others to dig new holes in the ground. But there is a risk that striking mega-deals might distract mining bosses from the main task of digging stuff out of the ground.