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China’s trade curbs on Taiwan after Pelosi visit are drop in the ocean

China's trade curbs on Taiwan after Pelosi visit are drop in the ocean

Beijing’s new trade blocks against Taiwan affect about 0.04% of their two-way trade, making them more political than economic.

Beijing took action against Taiwan following US House Speaker Nancy Pelosi’s visit to the island earlier this month despite warnings from Beijing. That included suspensions of imports of Taiwanese citrus, frozen fish, sweets and biscuits and exports of natural sands to Taiwan.

Taiwan is a self-ruled democracy, but Beijing considers the island part of its territory and a breakaway province. China says Taiwan has no right to conduct foreign relations and warned for weeks against Pelosi’s visit.

What trade numbers show

US House Speaker Nancy Pelosi with Taiwan’s President Tsai Ing-wen, after arriving at the president’s office on August 3, 2022, in Taipei, Taiwan. Pelosi’s visit infuriated China, which regards the self-ruled island as its own and responded with test launches of ballistic missiles over Taipei for the first time, as well as ditching some lines of dialogue with Washington.

Handout | Getty ImagesNews | Getty Images

When it comes to Taiwan’s imports from mainland China, more than half of the $82 billion traded in 2021 were electrical machinery, electronic and technological parts as well as nuclear reactors and boilers.

As for Taiwan’s exports to China, 65% of them were also similar goods in electrical machinery, electronic and technological parts.

Drop in the ocean

On the other hand, the volume of trade in areas that Beijing has targeted is relatively small.

Exports of natural sand to Taiwan — which Beijing has targeted — were a drop in the ocean against the above figures. They amounted to about $3.5 million last year, data from the Taiwanese trade bureau showed.

They were also a small trade compared with natural sand exports from Australia and Vietnam, the biggest suppliers of natural sand to Taiwan last year. Together, they supplied about $64 million of the raw material used in construction and other industries, making up 70% of Taiwan’s purchases, according to its trade bureau.

Similarly, the targeted trade of citrus was valued at a relatively small $10 million last year, though mainland China was also Taiwan’s biggest citrus buyer, Taiwan’s trade data showed.

The agricultural products now in the headlines are only a fraction of Taiwan’s export basket. And so the headline impact on Taiwan won’t really be noticeable.

Nick Brown

Economist Intelligence Unit

Other targets such as Taiwan’s exports of bread, pastry, cakes and biscuits to mainland China were worth more than $50 million in total last year.

Beijing’s specific suspension of two kinds of frozen fishes, horse mackerel and largehead hairtail, were valued at over $3 million in 2021, according to Taiwan’s trade bureau.

“China’s economic retaliation against Taiwan is a long-standing strategy in its diplomatic playbook. That said, its decision to target relatively low-value trade items reflects the limits of its economic pressure toolbox,” said global trade lead analyst at the Economist Intelligence Unit , Nick Marro.

“It’s already had restrictions on Chinese visitors to Taiwan in place for a few years, which carry more economic significance; the agricultural products now in the headlines are only a fraction of Taiwan’s export basket. And so the headline impact on Taiwan won’t really be noticeable.”

Precedents

Beijing’s trade suspensions against Taiwan are not a new phenomenon.

In previous years, tensions between the two have led to bans on mainland travelers to Taiwan.

Last year, China suspended imports of Taiwanese pineapples, citing quarantine measures over “harmful creatures” that came with the fruit. China was Taiwan’s biggest pineapple buyer up to that point.

Investment bank Natixis said that the recent Chinese trade restrictions focused on “highly replaceable food products” but not the information and communications technology sector in which the two trading partners have the most trade.

The bank also said mainland China will continue to import from Taiwan as long as it needs the goods, similar to what it has done in other trade conflicts such as the one it has with Australia and the United States.

In the China-Australia trade dispute that started in 2020, China restricted the purchase of some goods such as barley and coal but continued to buy iron ore from Australia, a key ingredient for China’s steel production and the bedrock of the countries’ trade.

There may also be other fallouts from the Pelosi visit that could hurt wider regional trade. For example, heightened military drills in the Taiwan Strait may delay shipments, analysts say.

“The shutting down of these transport routes — even temporarily — has consequences not only for Taiwan, but also trade flows tied to Japan and South Korea,” Marro said.

“It’s not just a story for Taiwan and China, but also for their neighbors, as well.”

Analysis by logistics platform Container xChange said any rerouting of shipping lines to avoid military exercises may be problematic for the trading world as it enters peak shipping season.

Container xChange Chief Executive Christian Roeloffs said, however, that supply chains have become far more resilient over the course of the pandemic.

Customer feedback shows any rerouting of vessels away from the Taiwan Strait will add a few days to ship voyages, though Roeloffs does not anticipate a massive hit to logistics costs.

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Categories
Business

Potential curb on Australian LNG exports is another blow to Asia-Pacific gas markets

Potential curb on Australian LNG exports is another blow to Asia-Pacific gas markets

The Asia-Pacific gas market has suffered another blow after major natural gas producer Australia signaled it could potentially cut down liquified natural gas exports as the region battles tight gas supplies, high prices and competition from gas-short European buyers.

Australia is looking to trim its overseas sales in favor of domestic consumption ahead of a projected shortfall in local supplies next year

As energy protectionism takes hold globally, last week, the Australian Competition and Consumer Commission called on Canberra to protect domestic gas supplies and curb LNG — cooled natural gas — exports after projecting the east coast of the country could face a shortfall of 56 petajoules of gas next year.

For months, the Asia-Pacific region has faced competition for fuel from European buyers looking to replace restricted Russian gas.

These European countries, in scrambling for LNG to mitigate a shortage of pipeline gas ahead of the northern winter, have outbidden some less developed Asian countries.

“To protect energy security on the east coast we are recommending the Resources Minister initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM),” ACCC Chair Gina Cass-Gottlieb said last week.

“We are also strongly encouraging LNG exporters to immediately increase their supply into the [local] market.”

A liquefied natural gas tanker berth in Japan, on Dec. 17, 2021. Should Japan ever exit the Sakhalin energy projects in Russia and their stakes were acquired by Russia or a third country, this would weaken the effectiveness of Western sanctions and benefit Russia, Japan’s industry minister said on Friday.

Kiyoshi Ota | Bloomberg | Getty Images

Most of the gas used on Australia’s east coast is produced by companies that are also LNG exporters to Asia-Pacific and other countries. The ADGSM stops these producers from exporting LNG if there is a shortfall domestically.

While most LNG sales to overseas buyers are made through long-term contracts, Australian LNG producers also sell ad-hoc and non-contracted LNG on the spot market. Countries without the ability to strike competitive long-term contracts are forced to buy them on the spot market.

It is this LNG supply that the ACCC says producers should avoid selling to the overseas market — currently flushed with gas-starved buyers — and save it for local consumers.

Gas lobby group the Australian Petroleum Production & Exploration Association however has assuaged markets, saying despite the ACCC warning, there is more than enough gas next year and that there has never been an actual shortfall previously.

“It’s certainly been the case throughout the existence of the export industry, that there has been a surplus of gas into the domestic market. So we have been able to achieve both. We don’t go for the idea that it is one or the other,” acting chief executive Damian Dwyer told CNBC’s “Squawk Box Asia” on Tuesday.

“There’s been significant investment into the export industry. And that investment has brought on significant domestic supply. One complements the other.”

But if the mechanism is successfully invoked, new supply and price pressures will be felt by the region’s biggest LNG buyers such as Japan and South Korea as well as newcomers to LNG imports such as the Philippines, analysts say.

LNG prices have soared nearly 80% since before the Ukraine war started in late February, according to the Platts JKM pricing index.

“Since April, there had been no [spot] tend sales from the three major LNG export facilities on Australia’s east coast, indicating that some exports were slowing down,” S&P Global Market Intelligence APAC LNG pricing regional manager Kenneth Foo said.

The Philippines is entering the global LNG market at a time of extreme uncertainty. Global LNG supply is constrained due partly to the Russian invasion of Ukraine, and LNG prices continue to hit record highs.

Sam Reynolds

Institute for Energy Economics and Financial Analysis

“The lack of spot availability from East Coast Australia could in turn further tighten LNG supply within the Asia-Pacific region, especially heading into peak winter demand season in the fourth quarter,” Foo said.

Developing Asian countries like Bangladesh and Pakistan have had to bow out of buying LNG on the spot market, Sam Reynolds, an analyst at the Institute for Energy Economics and Financial Analysis, said.

“Inability to procure LNG volumes in these countries has caused fuel shortages and blackouts, pushing countries to the brink of economic collapse,” he said.

The Philippines, a debutant to the LNG import market, will face tough conditions when it tries to import its first ever shipment of LNG, he adds.

Read more about energy from CNBC Pro

“Inability to buy LNG at competitive rates could leave new terminals and LNG-fired power plants unused and stranded,” he said.

Such setbacks may derail the Philippines’ efforts to boost its LNG sector, already suffering from years of setbacks, Reynolds says.

While countries without long-term contracts like the Philippines may suffer, generally the region’s LNG supply is secure.

Proposed cuts are small

The proposed Australian cuts amount to roughly 14 LNG charges. This is a drop in the ocean of contracted charges shipped each month. In July, Australia exported 100 cargoes among over 300 cargoes shipped into Asia, Reynolds says.

“Cuts would only limit exports of LNG that is not sold under long-term contracts. This means that cuts would have minimal effects on buyers like Japan, Korea, and China, which buy 70% to 80% of their LNG via long-term contracts,” Reynolds said.

LNG markets have bigger problems than Australian curbs. Europe’s jostling for Asia-Pacific’s LNG supply remains the biggest threat, Reynolds says.

Consequently, the rise in energy prices globally have contributed to the surging inflation that many central banks are racing to rein in.

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