The United States is importing less oil from Venezuela, and China is buying more. Is Venezuela putting its resources where Hugo Chávez’s mouth is and using the country’s major export as a geopolitical lever? Or are U.S. imports just catching up with a 10-year decline in Venezuelan production?

The U.S. Energy Information Administration released April data on Monday, revealing that imports of crude and petroleum from Venezuela in the first four months of 2008 fell 10.7 percent from the same period last year—from about 1.3 million barrels/day to about 1.16 million b/d.

If we take a longer-term view of U.S. imports of Venezuelan crude and petroleum, the drop is even more significant: Venezuela sold about 1.6 million b/d to the United States in January–April of 2005, as it had since the mid-1990s (except in the oil strike years of 2000 and 2003). This means that Venezuelan sales to the United States have declined 30 percent over the past three years. Why?

AP’s Rachel Jones reports that the drop is likely due to three factors: (1) falling demand in the United States, (2) falling production in Venezuela, and (3) Venezuela’s decision to sell more oil to China. Does this make sense? Let’s take a closer look at the numbers:

1. Total U.S. oil imports in January–April 2008 dropped 2.5 percent compared with the same period last year (you can download the raw data here, or check out the Transpacifica digest below (after the jump). This, then, might explain one-fourth of the decline in imports from Venezuela.
2. There are no reliable numbers on Venezuelan oil production, but those that exist (for example, the monthly OPEC report) indicate at most a 2 percent drop in production from last year—which, like the change in U.S. demand, would explain only part of the 10.7 percent drop in sales. Over the past 10 years, however, Venezuelan production has declined about 25 percent—about the same as the change in U.S. imports over the past three years (according to EIA data here).
3. The AP report states that Venezuela now sends 250,000 b/d to China, up from next to nothing a few years ago. The story does not source this figure, and PDVSA, Venezuela’s state oil company, recently stated that China buys 398,000 b/d, as a result of increased CNPC operations. Venezuelan President Hugo Chavez has said that the country plans to sell China 1 million b/d by 2012.

Is China buying 250,000 b/d or more of Venezuelan oil? If so, does that purchase explain declining sales to the United States? Or would sales have declined anyway, as a result of falling production in Venezuela? What is the role of Chávez’s oil donations to countries throughout the region? Perhaps there are other explanations. If the United States wants control over how much oil it buys from Venezuela, the answer is critical. (more…)

Fidel Castro met with He Guoqiang, a member of China’s powerful Politburo Standing Committee, for more than two hours yesterday, discussing numerous and diverse topics such as Tibet, Taiwan, food prices, the Olympics, and Fidel’s health (He conveyed President Hu Jintao’s wish for Castro’s speedy recovery). Earlier in the week He met with Cuban President Raul Castro.

He’s visit is just one of many recent signs of strengthening Cuba–China relations. Trade between the two nations surged to $2.2 billion last year, up 23 percent from 2006, and nearly 250 percent from 2005; China is Cuba’s second-largest trading partner (after Venezuela). China recently expanded broadcasts in Cuba of Chinese television stations and sold railway engines to the Cuban government for use in the public transport system.

He Guoqiang’s Cuba visit marked the beginning of a four-country tour that will take him to Brazil, Angola, and Trinidad and Tobago.

Our friend Lyle Morris has a well-reported piece at YaleGlobal on China’s new labor law, which went to effect at the beginning of this year.

Under the law, which affects both domestic and foreign companies operating in China, workers will see increased protection from labor unions and significant overhauls in policy ranging from contract formation to severance packages and job training. Arguably the most influential — and controversial — change centers on an open-term clause for long-term employees. The clause states that workers with 10 consecutive years, or having signed two consecutive fixed-term contracts with a company, are entitled to a contract without a fixed end date – essentially giving them lifetime employment. …

Many foreign enterprises voiced discontent with the law. Among them was Serge Janssens de Varebeke, then-president of the European Union Chamber of Commerce in China, who warned in a 2006 letter to the National People’s Congress that the “strict regulations” could raise production costs and “force foreign companies to reconsider new investments or continuing their activities in China.” …

Karen Lin, a senior fund manager at Paradigm Asset Management Co. in Taipei, predicts the law will add roughly 25 percent to the cost of labor in China, which typically accounts for 10 percent of total manufacturing costs. Companies that fail to adjust will start to feel major pressure on their profits within “five to six years,” Lin said.

It strikes me as a little bit duplicitous on the part of some foreigners to have their governments and citizens’ groups insisting on new regulations to improve human rights in China while business groups complain that such regulations cost too much money.

No matter which side of the debate you may stand on, it’s hard not to be a consumer of products created under these regulatory conditions. As Lyle writes, however, better laws on the books doesn’t necessarily mean better work conditions.

In the long run, whether or not the law is successful in curbing worker abuse is another matter. Critics point out that the while the law will add much needed rights for workers, its goal of reducing worker-abuse cases might be difficult.

“The impact it will have on migrant workers’ working conditions will be limited,” says Lauffs. “Simply passing a new law will not guarantee that the local labor bureaus will become more active in enforcing employees’ rights or companies will be more accommodating in coming into compliance.”

A fundamental question is whether Chinese workers will actually make use of their newfound power. “I think many workers will be hesitant to use their full rights under the law” says Zhangjian, secretary at a small electronics manufacturing company in Beijing. “Bringing too much attention to yourself could cost you your job.”

A Mexican mall opens in China—good news for China residents who like good tequila. But the mall is a rare example of Mexico selling to China. Usually China does the exporting, to Mexico and to Mexico’s most important market, the United States. Mexican companies are struggling to compete.

The Mexican consulting firm Latinasia will inaugurate a USD$300 million retail pavilion in Hebei next week, providing a space for sales of Mexican products such as Sangría Señorial, Tequila Noche Mexicana, and the unbeatable tacos of El Fogoncito. The megamall is likely the largest Mexican project in China to date, surpassing last year’s $100 million Maseca tortilla factory.

Niu Shuhai, president of Latinasia’s partner Hebei BODA Jituan Group, said he hoped the space will strengthen ties between the two nations.

Mexico and China have been strengthening ties for years. At a forum on Sino-Mexican relations at the Universidad Nacional Autónoma de México last week, Carlos Jiménez Macías, President of the Asia relations committee of the Mexican senate, pointed out that trade between the two nations has increased 500 percent since 2002.

This is good for China: Mexico provides yet another market for its manufactures. For Mexico the relationship is problematic. Unlike other Latin American countries such as Chile, Brazil, and Argentina, which send China colossal quantities of natural resources (providing more than half of all China’s imports of soya bean, fishmeal, poultry, and wine, for example), Mexico is trying to export textiles, electronics, and machinery—the very products China so successfully sells. (A recent paper from scholars at University of Southern California explores the details of this dynamic.)

But China’s products are often cheaper. This year, Mexico will sell China just $1 billion of goods, while Mexico will buy $15 billion of Chinese products. Worse, Mexico competes with China not only for the domestic market but also for U.S. buyers, who purchase more than 80 percent of Mexican exports. In 2005 China replaced Mexico as the U.S.’s second-largest trading partner (after Canada).

Thirteen years after the implementation of NAFTA, China is eroding Mexico’s share of the U.S. market. This is due in part to China’s raw advantage in price of inputs, quantity of semiskilled labor, and exchange rate. But it is also the result of Mexico’s failure to reform. When NAFTA was signed, economists were already clamoring for energy sector modernization, labor market liberalization, fiscal restructuring, and other measures—most of which are still unrealized. Mexican President Felipe Calderón has made some inroads since taking office last year, but there is a long way to go. China won’t wait.

I was delighted today to find a print edition of today’s International Herald Tribune in Beijing, a feat I thought impossible until the couple next to me drinking coffee could be seen peering over the top of their IHTs and deriding Thomas Friedman’s column (which curiously isn’t in today’s edition). I asked where they’d gotten the papers, which led me to an inconspicuous newsstand in a nearby mall. I also nabbed a paper copy of the South China Morning Post—an even better find, since its website isn’t free and Factiva is a poor excuse for an interface.

One of the only things you can get in the paper edition of the IHT that doesn’t seem to be online is its intriguing “In Our Pages” feature on Page Two. Yesterday, I discovered, marked the 100th anniversary of a speech in Shanghai by William H. Taft, then secretary of war and later to become the 27th U.S. president. I admit I’d never heard of this particular trip, but pulling up a couple of old articles reminds us of what U.S.–Asia relations were looking like a century ago, at least as far as U.S.-run media were concerned. Here’s what ran in the IHT today:

1907: Taft’s Speech in China

SHANGHAI: Disclaiming authority as an official spokesman of the American government, and insisting that he spoke as an American citizen, Mr. William Taft, at a banquet of the American residents of Shanghai, tonight [Oct. 8] strongly re-avowed the adherence of America to the “open door” policy. He said plainly that America would resort to every legitimate means to prevent injury to trade by the violation of the “open door” policy. He asserted that China would have the sympathy and support of America in every movement for her reform and uplifting, and congratulated the Chinese educated in America on teh part they are playing in the reform movement. He expressed satisfaction at the conclusion of the boycott and at the improvement of the relations of the two countries.

 The New York Times, which didn’t own the IHT at the time, had on Sept. 10, 1907, noted Taft’s activities before leaving on a 3-month trip around the world. Let me make a few newspaper nerd points before I quote the Times‘ account of the itinerary: (1) two weeks at sea from Seattle to Japan; (2) the age before newspaper stylebooks, or really, any consistency in formatting or typesetting at all; (3) periods in headlines.

“TAFT AT SEATTLE. / Makes Two Speeches and Will Sail for Japan Thursday.” concludes with this summary: “Leave Seattle Sept. 12; due Yokohama Sept. 25; Kobe, Sept. 29; Nagasaki, Oct. 4; Shanghai, 6; Hong Kong, 11; arrive Manila, 14, (via McClellan) and leave Nov. 4; arrive Vladivostok Nov. 11 and leave Nov. 12; arrive Irkutsk Nov. 16; Arrive Moskow, stopping two days, Nov. 23; arrive St. Petersburg, stopping two days, Nov. 26; arrive Berlin, stopping two days, Nov 29. Take steamer at Cherbourg about Dec. 4. arrive New York about Dec. 10.”

Diplomacy used to be something time-consuming. Imagine what stories you’d have to tell your friends in Washington when you returned from three months of travel with ample time to read, think, and consider what you see at each stop. I’m going to start taking ships.

[This is the first of what I hope will be many posts on Latin America by my friend and frequent collaborator Dorothy Kronick. Dorothy's reporting from Caracas, Venezuela, where she was a Fulbright Scholar, was published in The New Republic, The American Prospect, and the Chilean business magazine AméricaEconomía. She now lives in Buenos Aires, Argentina. –Graham]

Monday marked the one-year birthday of China’s free trade agreement (FTA) with Chile, the first such agreement between China and a Latin American nation. Both Chile and China had reason to celebrate the occasion: bilateral trade has increased nearly 100 percent since the agreement went into effect, driven largely by the sale of Chilean copper to conductor-hungry China. For the first time, China surpassed the United States as the principal customer for Chilean goods, purchasing $5 billion, or 15 percent, of Chile’s exports (in 2000, Chile sent just 5 percent of its exports to China).

The China-Chile FTA is just one of Chile’s new ties to Asia. On September 3, Michele Bachelet and Abe Shinzo signed an FTA that will eliminate the vast majority of tariffs between Chile and Japan. Trade between Chile and South Korea has increased 232 percent since the implementation of a bilateral FTA three years ago. Chile, Brunei, New Zealand, and Singapore increased their trade flows with the “Trans-Pacific Strategic Economic Partnership Agreement” last year. Later this month, Chile and China will discuss deepening their trade relationship by opening services markets. And there are more deals to be had. Latin America’s strongest and most dynamic economy has a lot to offer its Pacific Rim trade partners, and vice-versa.

Today my newly-former employer publishes my interview with Fair Trade and international economics expert Jonathan Jacoby of the Center for American Progress. I always found myself wondering how exactly Fair Trade is put together, especially when confronting such things as a favorite coffee roaster Intelligentsia’s “Direct Trade” program, which claims to pay farmers even more than Fair Trade-certified sellers. About a month ago I interrogated Jonathan about how all this works, and here’s the product, after the jump.

(more…)

President George W. Bush is expected to appoint his former deputy secretary of state Robert Zoellick as head of the World Bank, replacing his former deputy secretary of defense Paul Wolfowitz. Zoellick, who says has lived in Hong Kong, in previous speeches has regarded China the way the government has. In two speeches Zoellick pushed the “responsible stakeholder” rhetoric about China.

In a 2005 speech at a roundtable on China–U.S. relations, Zoellick remarked on the privilege of knowing Zheng Bijian, the international face behind the Chinese “peaceful rise” rhetoric. He used that contact as an introduction to a speech about China as a “responsible stakeholder.” He said:

China has been more open than many developing countries, but there are increasing signs of mercantilism, with policies that seek to direct markets rather than opening them. The United States will not be able to sustain an open international economic system—or domestic U.S. support for such a system—without greater cooperation from China, as a stakeholder that shares responsibility on international economic issues.

This served as an introduction to his criticism of China on points ranging from intellectual property to China’s “partnerships with regimes that hurt China’s reputation and lead others to question its intentions.”

But what is a “responsible stakeholder” to the folks at the U.S. State Department? In this speech, it seems as if the definition is accession to a variety of international laws and norms and considerable help in enforcing them. “[Responsible stakeholders] recognize that the international system sustains their peaceful prosperity,” Zoellick said. “So they work to sustain that system.”

The key here is not the words “responsible stakeholder,” but the words that come with it. Zoellick as U.S. deputy secretary of state said China should be a “responsible stakeholder in the international system,” (emphasis mine) and a “member” of that system. That system is often regarded, especially in economic commentary, as a manifestation of “the Washington consensus“—an ideology to which the World Bank is closely tied.

The unfortunate truth is that we can’t know how much of Zoellick’s speech reflected his own thinking and how much was State Department talking-points. Luckily we have another speech from when he was out of government and [probably paid handsomely to be a] vice chairman of Goldman Sachs. That one’s from nearly a month ago on May 2.

Paying tribute to the 2005 speech discussed above, Zoellick sought in this month’s speech to outline five topics that he believes make the United States and China “shared stakeholders.” The idea of being a “shared stakeholder” with the United States ought to be significantly different from being a “stakeholder in the international community,” but the topics vary little. He said the topics uniting the United States and China are: “economic policy; Korea; Iran; Sudan; and energy security.” (Korea, economic policy, Iran, and Sudan were in the 2005 speech, too.)

Sparing you the details, it emerges from this month’s speech that Zoellick as Goldman staffer was in agreement with his State Department self. He also made mention of his four trips to Darfur, Sudan, in a period of 12 months from 2005 to 2006. (Both speeches also reference the difference between U.S.–China relations in 1972 and now, the second specifically referencing Nixon and Mao.)

Zoellick is no shoddy politician, and no doubt this is part of the reason that he has been found fit to be nominated as head of the World Bank. What’s important now is whether his perspective as head of an “international” institution can jettison the U.S.-centric chops he’s been paid for for a long time and represent the interests of the citizens of the bank’s member states. If not, charges of a U.S.-dominated international economic system will only be strengthened.

[Speeches h/t Chinese Law and Politics Blog via China Law Blog.]

I had always casually wondered how this little maneuver works. How exactly does China keep its currency pegged to the U.S. Dollar, or more recently a “basket” of foreign currencies, and how does it let it rise? In the New York Times article noting the most recent minor shift in currency policy, I got my answer. The Chinese government borrows by issuing Yuan-denominated bonds from its own central bank in order to buy up U.S. Treasury securities to fill its huge foreign exchange reserves—$1.2 trillion worth. Here’s the neat part:

The central bank earns a higher interest rate on American Treasury securities than it pays on yuan-denominated bonds at home. The authorities use this profit from the difference in interest rates to cover losses on the foreign exchange reserves, which are worth less and less in yuan as the yuan appreciates.

So higher interest rates in the United States allow China to let its own currency appreciate.

The English version of the Asahi Shimbun article about the U.S. action against China in the WTO over intellectual property has a pretty obvious headline: “WTO complaints against China put Japan in a bind.” It addresses the fact that the U.S. government asked Japan to join the action (and they haven’t decided yet as far as I’ve seen), and how that’s kind of awkward when Chinese Premier Wen Jiabao is in Tokyo for a “thawing” visit.

But the final two paragraphs seem to make a point of sticking it to China more than the United States:

Honda Motor Co., for example, has won a suit against a Chinese company that made “Hongda” motorcycles. In the 10 years ending in January, Chinese authorities acted on about 2,000 cases of intellectual property rights violations involving Honda products and technology.

Meanwhile, Chinese vendors sell batteries labeled “Sqny” (not Sony Corp.) and pirated versions of Japanese anime DVDs.