Auto Industry

First blood

Trade war with the US takes its toll, although exports hold up overall


Tired out: Yongtai goes bust

One of the first victims of China’s trade spat with the United States was the crew of the Peak Pegasus, a cargo ship loaded with $20 million worth of American soybeans.

The 229-metre bulk carrier was scheduled to unload its cargo at the Chinese port of Dalian on July 6, just days after Washington had imposed the first round of tariffs on $34 billion worth of Chinese imports.

Knowing that the Chinese would retaliate and that soybeans were set to top the list of American goods targeted with an extra 25% tariff, the Peak Pegasus headed full-speed for China, hoping that it could arrive before any tit-for-tat measures were imposed.

But the boat arrived too late and with no one on the Chinese side quite sure of how the new tariffs were to be collected, it was forced to sail around in circles off the coast of Shandong.

After more than a month of aimless voyaging, the vessel finally docked at Dalian on August 12 and cleared customs after the buyer, a unit of Sinograin, agreed to pay the extra $6 million in duty.

The tariffs – as well as the threat of them – are starting to have the predicted consequences. Prices of soybean imports had been on the rise since the start of this year as Washington’s trade policies turned hawkish but the escalating row has now claimed a victim: Shandong Sunrise. Also known as Shandong Chenxi Group, the company accounted for 12% of China’s soybean imports as recently as 2014 but it has been forced to file for bankruptcy after failing to recover from the triple whammy of surging bean costs, tight credit conditions, and slower demand for pig feed.

Shandong’s economy – China’s easternmost province – looks like being one of the worst hit as trade tensions heat up.

Last week, another Shandong-based company, the tyre maker Yongtai Group, said it was going into court-ordered administration.

Shandong is China’s most important manufacturing base for tyres, contributing about a quarter of tyre exports and 40% of those products have been going to the US.

More corporate failures will follow if the trade dispute worsens, state-run media outlets have predicted.

In an op-ed published last month by People’s Court Daily, a newspaper run by the Chinese judiciary for legal professionals, Du Wanhua, a senior advisor to the Supreme People’s Court, even warned that the courts should prepare themselves for a slew of bankruptcies, especially for cases that are “more complex than usual”.

“It’s hard to predict how this trade war will develop and to what extent,” he wrote. “But one thing is sure: if the US imposes tariffs on Chinese imports following an order [to target] $60 billion, $200 billion, or even $500 billion [of goods], many companies will go bankrupt.”

Du’s suggestion is that the government should set up a new platform to deal with the legal wrangles that may result. The main objective, he believes, should be protecting the failed firms (especially tech companies) and their production capabilities, instead of “liquidating and auctioning their assets piece by piece”.

How, then, to reconcile Du’s gloominess with news that China’s exports have continued to grow?

Reuters reported this week that, even with the tariffs targeting $50 billion of Chinese goods going into effect for their first full month in August, shipments from China probably increased by 10.1% year-on-year, according to median estimates from 26 economists.

That would be the fifth month in a row of double-digit gains, Reuters says.

One possibility is that exporters are trying the same tactics as the crew of Peak Pegasus, racing forward with their shipments in the hope of getting ahead of a new round of tariffs.

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