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.

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