China loses pricing power in trade

08:08, May 18, 2010      

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China has almost completely lost its pricing power in international trade, as the prices of key commodities, including iron ore, oil, copper and food, have soared this year amid mounting imports by the world's second-largest economy, China's Ministry of Commerce warned Sunday.

Yao Jian, a spokesman for the ministry, noted at a business forum in Beijing that one major challenge China faces and will have to conquer is having no say in the pricing scheme of bulk commodities, Beijing Business Today newspaper reported Monday.

The long-existing problem was highlighted recently after Vale, BHP Billiton and Rio Tinto Group, the three largest exporters of iron ore, threatened last month to cut supplies to China unless steel makers accept their price demands. China's steel lobbyist, the China Iron and Steel Association (CISA), finally compromised and allowed steel makers to reach temporary private deals with ore producers.

"The steel mills, which have to accept the new quarterly pricing system raised by the global miners, will have to pay at least $70 billion more this year, based on the current prices and last year's import volume," Yao said.

The imports of crude oil, copper and food face problems similar to those confronting iron ore, which accounts for 65 percent of the global import, due to the severe imbalance between supply and demand, increasing dependency on imports and barriers to overseas purchases, and the manufac-tures have to adapt to cost fluctuations.

"A phenomenon began in the international commodity market this century: The price of a commodity will rise if China intends to buy it, and it will fall if China will sell," Yao said. "China's pricing power in the international trade system has almost completely collapsed, though our import volume is huge."

The abnormal situation in foreign trade indicates that there are many problems in our market mechanism, which could affect further opening to the outside world and sustainable and steady economic development, Yao argued.

Yao on Sunday cited three ways to change the unfavorable position, including integrating the domestic market to strengthen cooperation between enterprises; employing anti-monopoly laws and WTO rules to contain the manipulation of prices by global miners; making use of multiple finan-cial means, including futures markets, to enhance Chinese enterprises' influence on market prices.

Zhou Shijian, a senior researcher with the Center for US-China Relations at Tsinghua University, told the Global Times that low industrial concentration and the absence of an integrated domestic market are important factors affecting China's pricing power in the world's raw-materials market.

"There are too many small players in the domestic market that conduct business deals separately instead of forming an alliance in price negotiations, causing China to lose the initiative in setting prices for bulk commodities, in both imports and exports," Zhou said.

Liu Chen, an analyst with a Beijing-based futures brokerage, told the Global Times Monday that limited purchasing channels have made China more passive in pricing negotiations.

Source:Global Times
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(Editor:梁军)

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