Chinese paper cuts aren't bleeding US jobs
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In June 2010, the US Economic Policy Institute issued a study report entitled "No paper tiger: Subsidies to China's paper industry from 2002-2009," which asserts that Chinese government gave subsidies of $33 billion to paper industry from 2002 through 2009.
The report also states that the imports of coated paper from China to the US during this period exceeds that imported from the US. Consequently, the US confronts an increasingly unfavorable balance of trade that leads to enterprises' running under their production capacity.
The US Department of Commerce initiated an anti-dumping and countervailing investigation against coated paper from China in October 2009, and will make a final determination Monday, based in part on this report.
But there are serious doubts as to the accuracy and fairness of this report. It cites a number of figures publicly published by the Chinese government as well as several public papers that seem to be accurate. But the data falls apart if we examine it closely, and does not support the conclusions of the report.
For instance, the report argues that the total subsidies granted to industry through coal pricing were $300 million, but this is based on the dual price coal system whereby coal was available more cheaply to large companies, which was abolished in 2008.
The report also argues that paper plants have received subsidies of $2.5 billion through support for the cost of paper pulp.
However, this is based on the fact that the paper plants obtain raw materials from their self-owned forests, so the cost is quite low, since no land tax is charged for desert forestation. For instance, if a manufacturer produces pulp from his own land at 200 yuan ($30) per ton, as opposed to the market price of 300-400 yuan, the report counts this as a 100-200 yuan subsidy, ignoring the costs to the manufacturer of developing the forest in the first place.
And the US government provides considerable subsidies to its own enterprises. For instance, US President Obama proposed on September 8 that newly purchased assets should be deducted from income tax for 2010-2011, effectively providing around $200 billion to US businesses.
Tax support for R&D over the next few years is estimated to reach $100 billion. In the US individual states also provide support to different projects, such as the factory recently established by General Electric in Louisville, Kentucky, for which the government provided $17 million in production costs in order to ensure that the plant was not placed in China instead.
Among Chinese paper-making enterprises, 88 percent are small businesses and 12 percent midium-sized ones. If China followed US practices in providing competitive support to small and midium-sized enterprises, such as subsidies for power generation and taking on certain production burdens, every Chinese paper company would be entitled to grants and support.
We must question, too, how much of an impact the Chinese subsidies have had on US trade and employment. From 2006 through 2009, the amount of coated paper imported from China decreased by 22.3 percent. At the same time, the price has gone up by 2.7 percent from $777.70 to $792.90 per ton.
The unfavorable balance of trade with China also shifted in favor of the US by 42.9 percent from 2009-2010, at the same time as considerable US job losses occurred, showing that there is no direct link between Chinese imports and the unemployment rate. And why is the financial support given by the Chinese government to the paper industry China determined to be subsidies, while the report remains silent on similar policies in the US? Why does it jump to conclusions when there is little evidence for a causal link between Chinese paper imports and US job losses? How is the astronomical sum of $33 billion in subsidies reached without any detailed statistical evidence?
The report clearly suffers from severe methodological problems and a degree of bias. If a truly fair trade development in paper and other products is to be achieved, it needs to be done on clearer and fairer evidence.
The author is director of International Business and Economics at the Sino-US Economy and Trade Center. forum@globaltimes.com.cn
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