Phase 1 Commodity Targets Likely More Than China Can Chew: Analysts | 7/6/2018 | Staff
ZorraZorra (Posted by) Level 4
BEIJING/SINGAPORE (Reuters) – Commodity traders and analysts are struggling to map out how China will reach the eye-popping amounts it is committing to buy from the United States under Phase 1 of their trade deal.

China has pledged to buy $50 billion more in U.S. energy supplies, and will raise U.S. agriculture purchases by some $32 billion over two years above 2017’s $24 billion baseline, according to a source briefed on the deal to be signed on Wednesday. The deal also stipulates purchases of an additional $80 billion in manufactured goods.

Totals - Trade - Gap - Countries - Analysts

Those totals would certainly trim the roughly $300 billion annual trade gap between the countries. However, analysts who study Chinese commodity flows remain skeptical that Beijing can absorb such quantities of U.S. goods without threatening trade ties with other suppliers, hurting its own domestic producers, and making substantial changes to import standards and quotas.

“Either China massively increases imports and reduces current account surplus from the current 1.5% of GDP, or it engages in trade diversion away from current providers of goods which compete with the U.S.” said Alicia Garcia Herrero, Chief Economist Asia Pacific at Natixis in Hong Kong. “I see this second scenario as much more likely.”

China - US - Crude - Gas - LNG

China will have to include U.S. crude, liquefied natural gas (LNG) shipments and imports of petrochemical raw materials such as ethane and liquefied petroleum gas (LPG) to meet the target, Chinese trade sources and analysts said.

But it would still struggle unless new supply deals are signed that displace other exporters, they said.

Target - Seng - Yick - Tee - Analyst

The $50 billion target is “too aggressive and unlikely to achieve”, said Seng Yick Tee, an analyst at SIA Energy in Beijing, adding that energy product exports from the United States to China were about $8 billion in 2017 and 2018.

“To achieve $25 billion a year, all the imports need to be tripled.”


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