LAWS: China’s approach to world trade unsettling
May 16, 2005 7:08 AM, By Forrest Laws
A report in the International Herald Tribune the other day said soybean-crushing plants in China face closings this year because exporters are requiring them to pay in advance for their soybeans.
LAWS
The demands for upfront payments come after plants reneged on contracts last year, leaving shippers holding the bag for more than $350 million in soybeans, according to analysts.
Problems with Chinese defaults on payments haven’t been confined to soybeans. U.S. cotton merchants reportedly are trying to resolve contract disputes that occurred last year when Chinese textile mills began to realize they had purchased more cotton than they could use.
At one point, Chinese mills were behind on payments for $475 million of U.S. and Australian cotton. Some said the mills delayed payments so they could re-purchase the cotton at lower prices.
In a country as huge as China, supply chain and invoice blips are bound to be part of the landscape. But they also seem to be part of a pattern of deception in which Chinese executives seem to think they don’t have to play by the rules.
Readers know U.S. manufacturers have complained that the Chinese government manipulates the yuan so that its products are priced 25 to 30 percent below comparable goods in the United States.
Reports also abound of slave-labor wages and sweatshop working conditions. The Washington Post recently reported that a Chinese clothing factory owner said he paid his seamstresses $125 a month for nine hours of work per day. Some workers later said they were actually paid $75 a month for 12 hours a day.
At the end of the article, the factory owner, who was complaining about U.S. efforts to slow the flood of Chinese textile and apparel shipments to this country, said, “We’re not taking jobs from America. The competition is good.”
Because China is the world’s largest market for soybeans and cotton, shippers are treading softly whenever they complain about Chinese trading practices.
The China National Grain and Oils Information Center said it could purchase 24 million metric tons of soybeans — nearly a third of the U.S. crop — this year. USDA forecasts China could import 14.5 million bales — more than half of the U.S. cotton crop — in the same period.
The National Cotton Council has been working with the China Cotton Association to educate its members on the so-called Liverpool Rules, which govern cotton trading in most of the world, to eliminate future contract problems.
China obviously has set its sights on becoming the world’s leading industrial power. A recent Newsweek article said China is expected to triple its economic output in the next 15 years, overtaking Japan in 2015 and the United States by 2039. Many analysts believe it won’t take that long.
If members of the new Chinese entrepreneurial class can’t be made to follow international trading rules and the rules of human decency, this could turn into a nightmare for the rest of the world.
e-mail: flaws@primediabusiness.com
