May 6, 2004
The Chinese Trade Game
Part I: Who is Dictating the Rules?
By Brady Willett

“No country in history has burst onto the world economic stage as dramatically as China.”  WTO chief Supachai Panitchpakdi

In 2003 the Port of Los Angeles, the seventh busiest port in the world, increased its total Twenty-Foot Equivalent Units (TEUs) by 17.7% to a record 7.1 million TEUs. In 2003 the Port of Long Beach (the worlds 8th busiest) posted record container volumes. As for other major non US ports, strong growth is compelling the port of Shanghai to expand, Singapore is contemplating expansion, Pusan is expanding, Rotterdam is aggressively expanding, and Hamburg topped the 100-million-ton mark in 2003 for the first time in the port’s 814-year history.  Lastly, and despite specific statistical lags, the Japanese big 5 – port of Tokyo, Yokohama, Kobe, Nagoya, and Osaka (each ranked in the top 30 busiest ports in the world) – posted strong/record increases in TEUs last year for two reasons: America and China.

In summing up the increase in American port activity Long Beach Executive Director Richard D. Steinke states “A rebound in exports and the American consumers' appetite for goods from Asia have driven cargo totals to all-time highs.”  Needless to say, because the dollar is no longer as weak as it was and interest rates are rising – a weaker greenback makes US products more competitive abroad and higher interest rates are unlikely to support even further increases in consumer debt/asset prices - there is reason to believe that American port activity will soon cool. 

Regardless, the focal point with regards to ports is that while the US is the most important cog in global seaborne trade, it is not the driver of growth. Rather, growth in Asian ports – particularly Chinese ports – is.

Chinese Port Growth Changes the World?

With total throughput at more than 20 million TEUs the port of Hong Kong, the worlds busiest, sees more port activity than the top 7 North American ports combined. While many major US ports were tallying a 15+% increase in TEUs in 2003 (a number that confirms a strong global economy/trade), the port of Shanghai was posting 30+% year on year growth. As for the ports of Shenzhen – which are nearly as active as the ports of Hamburg and Antwerp combined – they logged nearly 40% jump in TEUs in 2003.

Suffice it to say, while global port activity has been increasing, activity in Chinese ports is exploding.  For example, Clarksons estimates that Chinese dry bulk import volumes have more than doubled in the last three years, ‘and they accounted for 94% of the growth of the dry bulk trade during that period.’ To put this shocking statistic into context, consider Clarksons comments:

“This [the explosion in Chinese dry bulk imports] caught shippers by surprise with the result that earnings are three times higher than has ever before been experienced. For example shipping a ton of iron ore from Brazil to Asia had an average cost $7/ton in the 1990s, but today it costs over $30/ton.”
World Sea Trade Outlook; Where China fits into the Global Picture Feb 2004 PDF

The reason for this explosive growth is easily understood: China, not yet a mature economy, needs basic raw materials to build an infrastructure that is capable of supporting growth.  However, before buying into the argument that super growth can occur without risk – something those with blind faith argue because “China won’t send [commodity] prices tumbling” (why not?) - consider Clarksons conclusions on China’s ‘transitional economy’:

“Since the products at this stage, especially those concerning the metals industry, are of a durable nature, typically demand grows very rapidly as domestic industry builds capacity to supply these needs. However once stock levels have been established, growth subsides and demand stagnates.”

Has China established stock levels that indicate that the growth is over?  Is demand about to stagnate?  Probably not. Rather, Chinese officials are actually trying to slow growth down by raising bank reserve requirements, closing down cement factories, banning flipping in the real estate market, etc.  In short, the immediate threat in China is not of stagnating demand but that demand, if left unchecked, will spiral out of control until the Chinese economy crashes.

Incidentally, whether or not China will be successful at orchestrating a ‘soft landing’ is not the question at hand.  Rather, taking a longer term perspective, today’s question is whether or not China has produced a lasting power shift in global trade.

In recent history Asian interests have been in a perpetual fight to ship product to the ‘resilient consumption based Anglo-Saxon economies’(Xie). However, in a sign that the tables are turning – that China’s clout is further solidifying the country as the worlds manufacturer – mature economies are starting to battle for the privilege of taking part in China’s historic expansion.  For example, port Rotterdam recently announced a $2.9 billion expansion plan.  The plan to expand comes as Chinese exports are surging, and capacity issues plague port Antwerp and port Hamburg (not coincidentally, both A&H are also enacting expansion plans). In the background of the Rotterdam expansion - which may be