China: A Protectionist Gambit?

It should be interesting when Congress starts sinking its teeth into this one.

From the FT:

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package.

From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.”

You have to give these guys credit. They’re fearless and certainly not ashamed about talking out of both sides of their mouth. Wasn’t it, say four or five months ago that they went ballistic over the “Buy American” provision in the stimulus bill? I guess “what’s good for the goose is good for the gander” doesn’t translate well into Chinese.

This is dangerous stuff. You and I both know what it’s going to trigger here and no doubt elsewhere. On top of that, it seems an incredibly stupid exercise. I’m sure we don’t want to start a game of chicken with them but if it came to that my guess is they would be the big losers at least for now. Sure, they could tank the dollar for awhile but I suspect that after they got done dumping things would tend to move back towards the mean. In doing that, they would of course lose their biggest market, probably see a lot of their production suddenly sourced elsewhere and complicate the politics of the Far East possibly to their detriment.

I assume their will be some statement in the next few days saying this was all a badly misunderstood statement. At least I hope so for their sakes.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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