From Volume 8, Issue 6 of EIR Online, Published Feb. 10, 2009

Global Economic News

As China Exports Crash, Canada Becomes Biggest Exporter to U.S.

Feb. 6 (EIRNS)—Last year, Canada surpassed China as the biggest exporter to the United States—a development "worthy of attention," the official Chinese People's Daily stressed in an article published Feb. 6. In 2008, China-U.S. trade grew at the slowest rate since China joined the World Trade Organization seven years ago. The trade was worth $333.74 billion, an increase of 10.5% from 2007, the lowest growth rate in the seven years since China's entry into the WTO, the General Administration of Customs reported on Feb. 5.

Already, in the first ten months of 2008, Canada retook its status as the largest exporter to the U.S., and China fell back to second place. The market share of China's products fell to 15.7% from 16.4% in the same period in 2007, People's Daily reported.

Chinese exports to the U.S. grew by 8.4% to $252 billion, while the import growth rate was up by just 0.2% to 17.4%. Bilateral trade had been at a monthly record of almost $31.8 million in September 2008, but had fallen to almost $26 million by December. Hardest hit were exports from the processing trade sector assembled in China, and those of labor-intensive products. These last were especially affected by the rise of the Chinese yuan, making them more expensive to U.S. consumers.

Spanish Economic Collapse

Feb. 4 (EIRNS)—The collapse of the speculative real estate market and the banking system has sent the Spanish economy into a tailspin.

Since Spain has lost its AAA sovereign credit rating, an EU7 billion Treasury auction of 10-year Spanish bonds on Feb. 3 saw yields jump to 137 basis points above German bonds, a post-European Monetary Union (EMU) high, according to City of London mouthpiece Ambrose Evans-Pritchard in the Feb. 4 Daily Telegraph. No foreign investors took up the bonds, leaving Spanish banks to buy up the debt.

"This is a national emergency. The government is being overwhelmed by events," said Mariano Rajoy, the opposition leader.

Labor Minister Maravillas Rojo reported that 4 million people would be out of work by end of the year—up from 3.3 million now. "We're suffering from a grave international financial crisis, lack of liquidity, and falling consumption," she said. In January alone, Spain lost 200,000 jobs. Unemployment is growing at three times the rate in the United States. Unemployed men are rushing to enlist in the military, in such large numbers that three quarters of applicants have been rejected.

Industry Minister Miguel Sebastian has launched a "Made in Spain" campaign, claiming that 120,000 jobs can be saved if every citizen spends EU150 less this year on imports. This, is a breach of the EU law against protectionism.

The center of the collapse is the banking system, led by British-allied Bank Santander, which, while maintaining the fiction that it is sound, has in fact been on life support, because the European Central bank accepts its toxic waste as collateral for credit lines. The banks officially have bad loans that have reached 3.5% and are expected to surpass the 8% peak seen in the crunch of the early 1990s—although this is certainly an understatement.

China Ups Nuclear Plans for 2020

Feb. 4 (EIRNS)—The People's Daily today announced a massive increase in China's nuclear power plans. There are currently 11 nuclear reactors operating in China, a combined capacity of about 9 gigawatts (GW), supplying more than 1% of the country's energy needs. In 2006, the goal of installing 40 GW of nuclear power by 2020 was adopted, to supply about 4% of China's need.

The new proposal is to raise the goal for nuclear to 5% of total power by 2020, or about 70 GW of nuclear power. The country would have to produce at least 60 GW of nuclear power to meet the 5% goal, the China Electricity Council (CEC) has said.

A quick start to the program is expected. The National Energy Administration says the program would "start building eight more nuclear power plants in the next three years, with 16 reactors whose total installed capacity will surpass 10 GW." The authorities will begin construction of nuclear power plants with a total capacity of 8.4 GW this year.

Fu Manchang, secretary-general of the Chinese Nuclear Society, said that "third-generation nuclear power technologies, such as the AP1000 developed by the United States-based Westinghouse Electric Co., will be the main feature of our future nuclear power plants."

Chatham House: Britain Should Produce Its Own Food

Feb. 2 (EIRNS)—While the British Empire faction is organizing a new worldwide "food shock," some British elites realize they'd better learn to grow some food for themselves at home. The Royal Institute for International Affairs, aka Chatham House, in its report "Food Futures: Rethinking U.K. Strategy," published today, calls on the government to take action and "change consumption patterns and food-production methods."

The report states: "Over the next few decades, the global food system will come under renewed pressure from the combined effects of seven fundamental factors: population growth, the nutrition transition, energy, land, water, labor and climate change. The combined effects will create constraints on food supply and if action is not taken, there is a real potential for demand growth to outstrip increases in global food production. Effects on developing countries would be devastating. Developed countries will be affected too. Expectations of abundant and ever cheaper food could come under strain. The U.K. can no longer afford to take its food supply for granted."

Today, only 48% of food consumed in the U.K. is produced domestically. Less than 30% comes from the EU, and the rest from outside. Between June 2005 and June 2008, globally the prices of butter rose by 74%; chicken, 62%; U.S. wheat, 120%; and milk powder, 69%. Even though these prices have fallen slightly, they have hit the pockets of U.K. consumers far harder than in other European countries. In the U.K., food-price inflation peaked at 12.8% in August last year, compared with 6.7% in France, and 7.1% in the United States.

Financial Shock Strikes Eastern Europe

Feb. 5—The currencies of Poland, Hungary, and the Czech Republic have dropped very significantly over the last few days, and could go into a spiral of uncontrolled devaluation. In the last six months, the Polish zloty has lost 28%, the Hungarian forint 19%, and the Czech krone 12%. Currency depreciation pushes up debts in euros, Swiss francs and other currencies.

Korean Manufacturers Left Hanging by Importers Go Under

Feb. 4 (EIRNS)—The giant Korean manufacturer Samsung is owed $116 million by the failed American retailer Circuit City, while LG Electronics is owed $41.2 million. This is only one of the more dramatic cases of exporters being left high and dry by the failure of their overseas customers. In this case, the vendors will get some relief because Circuit City will be put through an orderly bankruptcy. In other cases, the buyer just disappears after the goods arrive, or defaults in one way or another on the purchase contract.

The major Asian exporters, such as Korea, are experiencing such cases with greater and greater frequency. According to a spokesman for Korea Export Insurance Corporation (KEIC), "Exporters have come to realize that present conditions make it imperative to insulate themselves from losses, since there is no assurance that even reliable buyers in industrialized economies will be able to pay for products." KEIC indicates that the total value of claims made rose 7.4-fold from a year earlier.

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