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China may struggle to find money to fund US imports: Analysts, traders

Unlikely that Beijing can absorb quantities of US goods as pledged under phase one of trade deal

BEIJING: Commodity traders and analysts are struggling to map out how China will reach the eye-popping amounts it is committing to buy from the US under phase one of their trade deal.

China has pledged to buy US$50 billion (S$67.4 billion) more in US energy supplies, and will raise US agriculture purchases by about US$32 billion over two years above 2017's US$24 billion baseline, according to a source briefed on the deal signed yesterday .

The deal also stipulates purchases of an additional US$80 billion in manufactured goods.

Those totals would certainly trim the roughly US$300 billion annual trade gap between the countries.

But analysts who study Chinese commodity flows remain sceptical that Beijing can absorb such quantities of US goods without threatening trade ties with other suppliers, hurting its own domestic producers, and making substantial changes to import standards and quotas.

"Either China massively increases imports and reduces current account surplus from the current 1.5 per cent of GDP, or it engages in trade diversion away from current providers of goods which compete with the US," said Ms Alicia Garcia Herrero, chief economist Asia-Pacific at Natixis in Hong Kong. "I see this second scenario as much more likely."

TOO AGGRESSIVE

China will have to include US crude, liquefied natural gas shipments and imports of petrochemical raw materials such as ethane and liquefied petroleum gas to meet the target, Chinese trade sources and analysts said.

But it would still struggle unless new supply deals are signed that displace other exporters, they said.

The US$50 billion target is "too aggressive and unlikely to achieve", said Mr Seng Yick Tee, an analyst at SIA Energy in Beijing, adding that energy product exports from the US to China were about US$8 billion in 2017 and 2018.

"To achieve $25 billion a year, all the imports need to be tripled."

The pledge to boost US farm imports by over US$30 billion over two years is "shocking" since that increment is more than the value of farm products it has purchased from the US in a single year, said a China-based grains trader.

"It would make (more) sense if the $32 billion is the total number, not the increased number."

Such a large fixed dollar-figure from one producer would also risk supply disruptions and distort international crop prices, said Ms Iris Pang, Greater China economist at ING in Hong Kong. Traders also questioned what products China could buy from the US since African swine fever has dented demand for soya beans for animal feed and quotas to protect domestic farmers limit grain imports.

"China will, for sure, buy more soya beans, let's say, 30 to 40 million tonnes. (For) wheat, maybe we can increase purchases within the import quota," said a trader with a Chinese grain importer.

A third grains trader said: "If such volume (of products) come to China, it will be a disaster for us (in the domestic market)." -  REUTERS

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