Business Beyond the Reef

China and India have been rivals since at least the era of the Great Khans.  Most of the world defines their rivalry by border disputes in the Himalayas.  But their competition extends to the pursuit of resources, campaigning for foreign direct investment, trying to out-influence each other in world affairs, space programs, and – of course – trade policy.

Chinese Truck Parts?

Following up on my post last month about the rise of protectionism during the recession (see Broken Promises), it is worth noting that India is now the world leader in imposing anti-dumping duties against China.  Antidumping duties or safeguard duties have been imposed by India in the past few months on Chinese-origin sodium hydrosulphate (no, I don’t know what it is used for), aluminum foil, diethyl thio phosphorylc chloride (got me!), carbon black, truck parts and soda ash.  India is currently investigating whether to impose antidumping duties on Chinese penicillin, coumarin, barium carbonate, passenger car tires, weaving machines, SDH transmission equipment, viscose staple fibers and nylon tire cord.  India has also launched a countervailing duty investigation into Chinese sodium nitrite on suspicion of subsidies.  And India has banned imports of Chinese chocolate, milk and toys on safety grounds.  I’m sure each of these moves can be justified, but the pattern is disturbing.  Of course, if China is using dumping prices and subsidies to the extent India maintains, that’s pretty disturbing, too.

China has been more restrained in its trade measures viv-a-vis India.  Or perhaps Indian exporters haven’t been spending much effort on China lately.

A post earlier this month dealt with increasing outbound investment from China.  The occasion was a talk by Shanghai lawyer David Mao, who predicted that China’s outbound direct investment would soon surpass $90 billion a year.

Where Are They Going Next?

The October 28 issue of the South China Morning Post carries an article with what may prove to be confirmation.  Chinese firms nearly doubled their investments outside of China in the third quarter of 2009 (July through September).  For the quarter, they invested $20.47 billion in other markets, a spectacular 190% increase over the same quarter a year ago.  Chinese outbound investment was only $12.4 billion for the first half of 2009, so the third quarter performance raised the total for nine months to $32.87 billion.  That’s quite an acceleration.  At this pace, Mao’s prediction should come true in 2010.

State-owned firms, especially, have ready access to foreign exchange and are being encouraged by Beijing to invest overseas.  Outbound investments in 2009 have been made in 112 countries and have emphasized resource acquisition, as well as banking and other financial services.  Commentators interviewed by SCMP said such outbound investment could continue for years, perhaps a decade or longer.

Politicians have been looking in all the wrong places to find the first “green shoots” for the economy (world or national, it doesn’t matter).  The real green shoot indicators are when reserve banks start to tighten rather than ease, and when shipping rates begin to turn up.  We may be seeing that.

Green Shoots in Hawaii

DryShips reported better than expected earnings this morning.  While revenues are still considerably down from a year ago (which is to be expected), earnings were significantly above expectations.  DryShips cited increased drill rig returns and lowered costs among the reasons, but the tell is that the company also highlighted improved spot market charter rates.  That is a “green shoot” for expanding cargo demand.  Watch to see what happens with other shipping companies, and also with railroad traffic.

Almost simultaneously, the Reserve Bank of India raised its bank liquidity ratio, which amounts to a reserve requirement that limits how much money an Indian bank can lend.  This is a small, but first step towards tightening India’s credit market, something that would only be done if the central bankers felt their economy was on the way back.  Another “green shoot”.  This is on top of Australia’s recent increase in interest rates.  And Norway is widely expected to raise interest rates tomorrow morning.  Something is happening, and I think it is good.

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