05/10/11 Baltimore, Maryland – This morning in China, we learned the local trade surplus widened last month to $11.4 billion. That’s higher than any of the guesses that came from Wall Street. Exports for the red nation surged to a record high.
“China’s unfair currency manipulation has gone on for far too long,” commented Sen. Sherrod Brown (D-Ohio) eliciting a groan not of our own making, “and it’s clear that legislation is needed to level the playing field.”
Sherrod (pronounced ‘charade’) is sponsoring a bill with Sen. Olympia Snowe (R-Maine) that would slap new trade sanctions on China.
For their part, the Chinese government is mucking with the trade environment by fining the Anglo-Dutch consumer products giant Unilever for an unpardonable crime: alerting the media that it is raising prices.
Unilever, maker of everything from Lux soap to Lipton tea, made the announcement in late March – much to the consternation of the National Development and Reform Commission. The NDRC says the news “disrupted market prices” and resulted in the hoarding of consumer goods in several cities – driving sales to 100 times “normal levels.”
It appears Unilever ran afoul of China’s Price Law – forbidding business from “fabricating and distributing information about price increases, raising prices collectively and pushing up prices excessively.”
As a consequence, “severe punishment was meted out this time to break ugly habits and build new rules,” read the NDRC statement. “We accept the decision of NDRC and Shanghai Price Bureau,” says a statement from Unilever, displaying the requisite amount of humility.
The fine amounts to $308,000, but the size is “quite significant” in the eyes of Nicholas French, who works in the Beijing office of the global law firm Freshfields Bruckhaus Deringer. “Clearly, it’s all to do with inflationary pressures and keeping that under control.”
Meanwhile, the Chinese food and beverage maker Tingyi got off with only a warning for its transgression against the Price Law.
The firm made an announcement in March about its Master Kong brand, which accounts for half of China’s instant-noodle market. Tingyi would not raise prices, but rather would postpone a price increase.
Guess that ran afoul of the authorities, too. “We will follow the instructions by the government to make inflation stable,” Tingyi’s CFO tells Bloomberg, obviously still smarting from whatever knuckle rapping was administered behind closed doors. “Although our gross margin will be squeezed, we’ve decided to suspend” price increases.
Of course, none of this has to do with inflation. Gulp.
By official statistics, consumer prices in China jumped an annualized 5.4% in March. Unofficially, the figure is probably double that.
Last week, the central bank issued a statement saying, “Stabilizing prices and managing inflation expectations are critical,” sounding more or less as benign as Ben Bernanke at the Federal Reserve press conference (and fun camp) last week.
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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Addison,
What is being proposed on Capitol Hill is akin to what happened during the Great Depression when a tariff war was started. The tariff war that I speak of dragged the USA deeper into their depression. As the USA is one of the largest importers of Chinese goods, I am concerned, what is being missed is that some of what we do import from China is vital for the technology based manufacturing, things like Rare Earth Elements being the largest. If a tariff war begins, China can well afford to hold out financially can we say the same.
These idiot politicians have not figured out that they are the small dog in the fight. Keep aggravating that big dog China and we will get eaten alive.
Politicians don’t really differ much across countries or the ages. They try to look good and muck things up for everybody. They live in their own bubble world and have forgotten how things are like for the average joe. Sadly, though – as the ancient Romans once said – the people deserve the leaders they get.
So…..it sounds like the big problem in China is ANNOUNCING that the company will raise prices. What happens if the company just QUIETLY raises its prices?
This article was well written and easy to follow. Well put Addison.