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2009-02-25 | All chapters

Chinese Spend Big To Bolster EU Trade
Mei Fong, Wall Street Journal, 25th February 2009

A delegation of Chinese executives and officials left for Europe Tuesday to buy billions of dollars of machinery, automobiles and food products, as Beijing seeks to cultivate goodwill and fend off protectionism amid the economic downturn.

The group, which is headed by Minister of Commerce Chen Deming and includes some 200 business executives, plans to sign purchase agreements totaling as much as $15 billion during its tour of Germany, Switzerland, Spain and the U.K., according to the state-run Xinhua news agency.

Among the goods they're expected to sign deals for are jet engines from Rolls-Royce Group PLC, luxury cars from Jaguar and Land Rover, railway equipment and olive oil, according to Xinhua and people familiar with the plans.

China has organized similar trips to the U.S. before, ahead of visits by top leaders, but this is the first such mission to Europe, which is China's largest trading partner. It kicks off a series of similar planned trips this year, according to Chinese officials.

While businesspeople are also seizing on the chance to find good deals in a buyers' market, the spending spree comes amid concern in Beijing that the global recession could prompt countries to erect trade barriers that would hurt China's battered export sector.

The European trip 'reflects China's commitment to an open market and our goodwill to help with world economic recovery by closer economic cooperation with other countries,' said Gao Hucheng, vice commerce minister, Xinhua reported.

China is also seeking to soothe concerns overseas about a recent string of big investments in natural resources, including plans by state-owned Aluminum Corporation of China Ltd. to invest $19.5 billion in Anglo-Australian miner Rio Tinto PLC. In the latest such deal, China's Hunan Valin Iron & Steel Group Co. Ltd. said Tuesday it will buy 16.5% of Australian iron ore miner Fortescue Metals Group Ltd. for about $769 million.

Those deals have triggered concern abroad that China -- with foreign exchange reserves of nearly $2 trillion and ample funds in its banks -- is accumulating too much control over key natural resources.

Chinese buying sprees 'are not new, but the rationale behind this [trip] is,' said Matthew McConkey, a Beijing-based trade expert at law firm Mayer Brown JSM.

'They're sending the message, 'We're being a good international player. This is how the wheels of commerce turn,'' said Mr. McConkey.

China's private sector is also becoming more active overseas. In recent months, several companies have organized tours to places such as New York and Las Vegas for groups of Chinese property buyers.

The European spending tour follows a burst of overseas trips with a heavy commercial component, by senior Chinese leaders.

In the past month, Premier Wen Jiabao traveled to Europe, President Hu Jintao toured Africa and the Middle East, and Vice President Xi Jinping visited several Latin America countries, including Venezuala and Brazil, where China signed agreements for billions of dollars of loans and other cooperation deals.

China wants to show that it is 'no longer a follower, but a promoter and advocate' on the global trade scene, said Song Hong, a trade researcher with the Chinese Academy of Social Sciences, a government think-tank.

China's economy, the world's third-largest after the U.S. and Japan, has slowed, but it remains the only major power still growing. Exports have declined, but imports have fallen further, leaving its trade surplus near record levels. Foreign critics say China unfairly boosts its surplus by keeping its exchange rate low, making its goods relatively less expensive.

China's government fears it could become a scapegoat for the worsening global economy. In recent weeks, Chinese officials have stepped up calls against protectionism, including vocal criticism of the 'Buy American' clause in the recently passed U.S. stimulus package.

In a commentary published Friday in The Wall Street Journal, titled 'Protectionism Doesn't Pay,' Mr. Chen, the commerce minister, wrote: 'In the heat of the crisis, it's critical that all countries refrain from pointing fingers at each other or pursuing their own interests at the expense of others.'

China's procurement missions are unlikely dent its huge surplus. Michael Pettis, a finance professor at Peking University in Beijing, estimates China would need to spend between $15 billion to $20 billion a month to reduce the trade imbalance. 'I just don't see how it could,' he says.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, says that instead of high-profile shopping tours, China should address complaints about limited market access in industries such as financial services, as well as preferential treatment and subsidies by provincial governments. European companies want a level playing field where we have easier access to Chinese consumers,' he said.

Full details of the planned spending this week in Europe aren't yet available. The British leg is likely to include $2.23 billion of purchases, including $1.33 billion of aircraft engines and related services from Rolls-Royce, $615 million for 3,000 Jaguar and 6,000 Land Rover automobiles, according to a person familiar with the matter. It isn't clear who will be buying the cars, or why.

Another person familiar with the trip-plans said spending in Germany will also include significant car purchases, and will be even larger.

Source: http://chinese.wsj.com/gb/20090225/bch101316.asp?source=whatnews2