Highlights from the last week of China business news: Paulson’s latest visit (no prizes for guessing what he talked about. Starts with an R and ends with a ‘enminbi’); state-owned steel and auto giants get leaner, but not without dieting problems.
Paulson visits, harps on yuan issues
United States Treasury Secretary Henry Paulson kicked off a four-day visit to China by dropping by Qinghai Lake in the western Qinghai province, to see for himself the effects of climate change and desertification on the environment. Paulson cleverly used the visit as a jumping-off point for scheduled talks with Vice Premier Wu Yi and President Hu Jintao. "There is much more tension in the trade area, so this is an important area where there is less tension and I think it’s a good place to start this trip," he told Reuters.
No surprises on what Paulson and Wu Yi talked about. He wants the yuan to appreciate more quickly. He also asked for China to allow foreign-invested joint venture brokerages. Two bills are being debated in Congress now that, if passed, would label Beijing a "currency manipulator" that is unfairly keeping the yuan low to increase competitiveness of Chinese exports. But economists have argued before that this is not the case, and a revaluation is not likely to benefit the US the way legislators say it will.
Now, a quibble: The proliferating schedule of US-China talks and dialogues can get confusing, so it’s worth mentioning that Paulson’s recent visit was not part of the US-China Strategic Economic Dialogue (SED) that began in 2006. The second SED was held in Washington when Wu Yi led a delegation there, and the third is scheduled for December in Beijing. Paulson’s latest visit was to lay the groundwork for December – might we suggest calling it SED 2.5? Some foreign correspondents from reputable papers got this confused, too, so here’s setting the record straight.
National champions in the making
China played down hopes of a top medal finish at next year’s Olympics, saying compatriots may have to be content with third place behind Russia and the USA. But concrete steps to create Chinese champions of another kind were taken this week: Shanghai Automotive Industry Corp (SAIC) and Nanjing Automobile (Group) said over the weekend that they had signed a letter of intent for "full cooperation". A merger between the two carmakers would fulfill Beijing’s wishes to consolidate the fragmented auto industry and create a Chinese car company that is internationally competitive.
SAIC and Nanjing Auto were rivals when bidding for parts of the MG Rover business in 2004. Shanghai ended up with Rover rights that allowed it to launch its Roewe 750 saloon. Nanjing is producing MG sports cars. A merger between the two could be mutually beneficial, since Nanjing would get capital from Shanghai to develop the rest of its Rover platform while Shanghai would have access to more technology, the Wall Street Journal noted. SAIC is China’s largest carmaker, selling 1.37 million cars last year.
Similar consolidation was announced in the steel industry this week. Wuhan Iron & Steel, one of the country’s largest steelmakers by output, will buy Kunming Iron & Steel. But consolidation in steel underscores the difficulty of promoting a national champion while appeasing trade partners. Beijing has encouraged consolidation in the fragmented steel industry, even as it discouraged increased steel output. In May, the government slapped higher export taxes and reduced rebates on steel products. The cooling measures were taken to reduce China’s trade surplus after Vice Premier Wu Yi’s visit to Washington during the second US-China Strategic Economic Dialogue (see above for more).