RESEARCH: Economics and Trade REPORTS

January 2015 Trade Bulletin
Highlights of this month’s edition: •Bilateral trade: November trade deficit with China increases 10.7 percent year-on-year; 2014 deficit on track for another record; U.S. exports to China contract for third consecutive month. •Bilateral policy issues: Vice-PM Wang Yang makes conciliatory remarks at JCCT; JCCT renders important outcomes on export controls, medical products, biotech, antitrust; China tables new GPA offer, again piecemeal; China complies early with WTO rare earths ruling. •Policy trends in China’s economy: Internet company TenCent launches China’s first fully online private bank with Premier Li’s blessing. •Sector spotlight: China approves MIR 162 GMO corn trait, paving way for more U.S. corn shipments; asynchronous biotech approvals and other agricultural market barriers remain.
December 2014 Trade Bulletin
Here are the highlights of this month’s edition: • Bilateral trade: October monthly deficit declines 3.2 percent on the strength of U.S. exports to China, but overall trade deficit on track for another record in 2014. • Bilateral policy issues: China pushes FTAAP, meets with Japan, signs South Korea FTA at APEC meetings; U.S.-China summit produces deals on climate, visas, and ITA; G20 members agree to combat tax evasion and money laundering; China-Australia FTA opens services sector and raises threshold for screening of Chinese investments. • Policy trends in China’s economy: China announces deposit insurance scheme; “guarantee chains” plague China’s banking sector and risk spreading contagion. • Sector spotlight – Illegal Wildlife Products: China makes international pledges to ban trading but poaching and illegal trading still incentivized by rising income levels in China, partial legalization, and skyrocketing prices.
November 2014 Trade Bulletin
Highlights of this month’s edition: Bilateral trade: U.S.-China goods deficit reaches $251.8 billion through September on strength of imports from China; U.S.-China trade surplus in services hits record $6.81 billion in Q2, as U.S. exports grow and China services sector lags; The Fourth Plenum Decision: Government promises to improve fairness and accountability in the legal system, but the Party is not loosening grip on power; Bilateral policy issues: Renminbi “significantly undervalued” but Administration stops short of accusing China of currency cheating; United States requests China submit missing subsidies notifications to WTO; Quarterly review of China’s economy: Slowest GDP growth in over a decade; key indicators underperform (freight, real estate, consumption); exports strong but data unreliable; global investors in limbo as Shanghai-Hong Kong stock trading link missed projected start date amid ongoing protests in Hong Kong; Sector spotlight – Asian Infrastructure Investment Bank: The AIIB heralded as a much needed addition to address the region’s infrastructure funding shortfall; concerns remain on lending standards and its potential challenge to the World Bank and IMF. This edition of the monthly trade bulletin, originally released November 4, was revised on November 5 to highlight the United States’ record monthly goods deficit with China. The original version included an inaccurate subheading, which stated that the deficit was up but growing more slowly.
October 2014 Trade Bulletin
Highlights of this month’s edition: Bilateral trade: Monthly U.S. trade deficit with China declines 2.2 percent but year-to-date deficit up 4.1 percent; U.S. exports to China continue to rise, while imports slow; Bilateral policy issues: Inflows and outflows of FDI in China decline amid anticorruption and antimonopoly crackdowns; Policy trends in China’s economy: The People’s Bank of China, the central bank, is injecting RMB 500 billion into China’s five largest banks on concerns over economic slowdown; the State Council introduced new measures to boost small companies; and Sector spotlight – China-India-U.S. Economic Relations: In mid-September, President Xi Jinping made his inaugural visit to New Delhi as China’s head of state. Two weeks later, India’s Prime Minister Narendra Modi traveled to Washington for the first time since taking office in May. The two visits mark an important step in the development of triangular relationship between the United States, China and India.
China Fiscal Policy Revamp Faces Hurdles
Key Points: Since its last overhaul in 1994, China’s flawed fiscal system has muddled through. Local debt, slowing revenue, and greater spending obligations are now spurring a new round of reform under President Xi Jinping; By eliminating the so-called “business tax,” Beijing is allowing services companies to enjoy the same tax deductions and rebates manufacturers do. The government may also establish a price-based tax on coal and a recurring tax on property; The government ultimately seeks to rebalance the economy. Fiscal reform could boost services, prevent housing bubbles, redistribute income, and reduce pollution. But it will be difficult to implement in China’s segmented economy and authoritarian system; The central government has a clear vision for improving budget flexibility and transparency. Yet it remains ambivalent about how to share revenue, spending responsibilities, and borrowing authority with local governments.
The RMB’s Long Road to Internationalization
Key Points • Chinese authorities have used Hong Kong’s position as a global financial center to promote the use of the RMB abroad. Hong Kong is the oldest and largest market for offshore RMB transactions, and will remain so despite the emergence of several other offshore contenders. • To date, RMB internationalization efforts have involved three main channels: offshore RMB deposit accounts and bonds, use of the RMB for cross-border trade settlement, and establishment of RMB swap lines between the People’s Bank of China and other central banks. • Despite growth in onshore and offshore use, the RMB cannot become a true international currency until Chinese authorities liberalize China’s capital account, allowing for unrestrained movement of financial flows.
The Risks of China’s Internet Companies on U.S. Stock Exchanges (with Addendum Added September 12, 2014)
In May 2014, Alibaba, China’s leading e-commerce website, filed for a U.S.-based initial public offering (IPO) in what is expected to be one of the largest in U.S. history. The highly anticipated IPO will be just one in a recent wave of Chinese Internet companies launching IPOs in the United States. The trend has raised some misgivings among U.S. regulators about the corporate structures of these companies. To bypass Chinese government restrictions on foreign investment in the Internet sector, Chinese Internet companies use a complex and highly risky mechanism known as a Variable Interest Entity (VIE). An addendum was added to this paper on September 12, 2014.
September 2014 Trade Bulletin
Highlights of this month's edition: Bilateral trade: U.S. cumulative deficit with China through July $8.2 billion higher than last year, on track to break record; exports outpace imports by 3 percentage points; Bilateral policy issues: U.S. business associations slam Chinese antitrust crackdown as discriminatory; Chinese applicants dominate EB-5 investor visa program; Policy trends in China’s economy: China opens hospital ownership to foreign investors; and sector spotlight – Express delivery services: After years of delays, China grants foreign companies licenses to extend domestic express package delivery services.
August 2014 Trade Bulletin
Highlights of this month’s edition Bilateral trade: The U.S. June trade deficit in goods was the highest yet this year; although the U.S. surplus in services increased in the first quarter of 2014, the overall U.S. deficit is headed for another record; Bilateral policy issues: Latest S&ED sets a timeline for BIT negotiations, few other outcomes; WTO issues a mixed ruling in China’s challenge to U.S. countervailing duties; Ralls wins a limited legal victory in battle with CFIUS; Chinese investment in U.S. real estate jumps; Microsoft under investigation by Chinese antitrust authorities; Quarterly review of China’s economy: Momentum sustained despite housing slump; surge in exports and PMI; lack of rebalancing; corporate bond boom and new private banks; Beijing deepens ties with Latin America and co-establishes BRICS bank; and Sector spotlight – China’s meat industry: U.S. companies under fire in meat safety scandal; broader questions raised about China’s food regulation and discrimination against foreign companies.
July 2014 Trade Bulletin
Highlights of this month’s edition: Bilateral trade: U.S. exports to China stage modest recovery, driven by transportation equipment; monthly goods deficit at highest level so far this year; Bilateral policy issues: State Dept official previews S&ED talking points; China disappoints at WTO ITA talks; solar dispute with China splits U.S. interest groups; 25th Tiananmen anniversary makes China business difficult for Google; China’s economy: Property slump adds to concerns of slowdown; anticorruption crackdown intensifies with SOE auditing campaign and indictment of top military official; and Sector spotlight sovereign wealth funds: China Investment Corp. under siege from Chinese auditors; adds to concerns about fund’s governance and investment strategy