Wen Jiabao of China happily announced today that the country would be running a trade deficit in March. He added that China is not seeking to have a trade surplus but merely to achieve balance between its imports and exports. China is trying to be a good world citizen, he implied, as a key part of the world trading system.
However, analysts expect that in fact China is likely to come close this year to its 2009 trade surplus of $196 bn. Because of the impact of Chinese New Year plant closures, China almost every year runs lower trade surpluses early in the calendar year. And the surpluses start rolling in about two months later and continue till Dec. 31.
Wen’s remarks reflect the fuzzy logic of the debate over the parity of the renminbi, China’s currency. Beijing insists that the value of its money is something that China has a right to set unilaterally. Other countries, including not just the USA, but also the European Community, argue that competing against artificially cheap cheap Chinese exports is costly for their own economic recovery. Economists calculate that China’s cheap money is costing world gross national product as much as 1 1/2% of potential growth.
So paradoxically, to deflect criticisms, Chinese officialdom is gleefully announcing that there’s a trade deficit already, so there is no need to revalue the currency. And if the deficit disappears?
I was struck by the similarly fuzzy logic of the alleged “relief rally” in drug stocks yesterday, following the passage of healthcare reform legislation. The theory is: better the devil you know than the devil you don’t know.
But in fact, the Obamacare compromise is good news for the pharmaceutical makers. Fris tof all there are all these millions of new customers who can now afford their meds. Then too, the program as passed by the House has no price caps on drugs at all. There is a 12-year patent exclusivity on biological drugs which will have a longer-time payback for patent-holders. And an attempt to write into law a ban on deals for designated or authorized generics, also known as “pay for delay”, has been scrapped. So the drug majors can continue to prevent real competition from copycat drugs even after patents have expired.
Neither the Chinese fixed exchange rate nor the current messy drug compromise are likely to prevail over time. Once the debate has opened it can go into unwanted directions. Wen may be surprised that his own convoluted logic can come back to defeat Chinese plans to continue to undeprice exports by fixing the RMB to the Greenback. And pharma giants should not assume that there will not be further healthcare measures as the defects of the current compromise become clearer.
A MD reader reproached me for the sale of Computer Modelling last week, at a handsome profit, because I had not run the sale past the reporter who originally picked CMDSF for us by screening stocks. The reporter was Chris Loew in Japan. But it was Vivian, not Chris, who interviewed the company and did the analysis. Furthermore, Vivian decided that the oil and gas industry are changing so that this one-horse technology company might find future profits tougher to achiever. I could have wasted a few more days seeking Chris’s input, but I think the big picture changes in how oilfields are operated can be seen just as clearly from New York (where I was then) as from Osaka. Or Maryland.
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