Emerging Markets Roundup: China

TRADE FRICTION WITH THE US GROWS

 

By Thomas Clouse

 

China and the United States are facing further trade friction after the US Senate passed a bill imposing tariffs on Chinese imports.

 

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PepsiCo challenges Coca-Cola’s dominance

Photo Credit: pcruciatti / Shutterstock.com

Proponents of the bill charge that China’s rigid exchange rate policy gives the country unfair trade advantages and results in domestic job losses for its trading partners. The Senate bill drew sharp criticism from Chinese officials.

 

Although the US House of Representatives is unlikely to pass the bill, trade friction could intensify in coming months. With global demand waning, Chinese policymakers are reluctant to hurt exporters further by adjusting the value of the currency. At the same time, high unemployment and an upcoming election in the US are bringing more attention to China’s trade policies.

 

Global beverage maker PepsiCo agreed in November to exchange its China bottling operations for a 5% stake in Tingyi Asahi Beverages. TAB, a Taiwanese and Japanese joint venture, is a leading provider of instant noodles and other food and beverage products in China. As part of the deal, PepsiCo can increase its stake to 20% in 2015. The agreement will allow Pepsi to access Tingyi’s distribution channels and help it better compete with rival Coca-Cola—China’s leading soft drink provider. The agreement requires regulatory approval from antimonopoly officials, a task that has proved challenging for other food and beverage companies. In 2009, regulators blocked Coca-Cola’s bid for domestic juice maker Huiyuan, and in November, regulators approved Yum Brand’s bid for Chinese chain Little Sheep.

 

Price growth is showing signs of slowing in China after months of policy tightening by regulators. The consumer price index rose 5.5% year-on-year in October—down from 6.1% in September—and 49 of 70 medium and large cities tracked by the government reported new home price growth rates under 5% year-on-year in September. The lower price pressures will give the government more maneuverability to stimulate the economy amid unstable global economic conditions. The government has already taken some steps to encourage growth, including enacting tax reductions for small businesses and instituting local government bond pilot schemes in some cities and provinces.

 

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