Monday, November 15, 2010

Hosting the Dalai Lama can be bad for your export health

Although China caught the world's attention in September by using trade as a bludgeon in suddenly cutting shipments of rare earth minerals to Japan, Beijing has been throwing its weight around for considerably longer, especially over the Tibetan religious leader the Dalai Lama.

The decision to cut back on rare earth shipments grew out of a fit of pique over who controls a handful of East China Sea islands. It has awakened the world to the fact that a pugnacious China is willing to use a trade as a hammer to further its political aims, but it is hardly a new story.

Governments in the past have paid the price for daring to host visits by the Dalai Lama, according to a 46-page paper published in October by economists Andreas Fuchs and Nils-Hendrik Klann at the University of Goettingen in Germany, who set out to quantify the effect. World leaders who welcome the Tibetan religious leader face an average 8.1 percent annual loss of exports from their countries to China for up to two years before the "Dalai Lama Effect," as the authors call it, wears off.

For decades, the Dalai Lama has pursued an energetic agenda of keeping Tibet in the world news. He has visited 62 countries on all of the world's continents between the time he was forced into exile in 1959 and the end of 2009, usually meeting heads of state, much to Beijing's annoyance.

As China's economic clout has grown, it has become increasingly assertive in using trade systematically as an ideological weapon, according to the authors. The degree of political compliance "increases with the asymmetry of the trade interdependency between the two trading partners…With the rapidly increasing size of the Chinese economy, the asymmetry of trade dependencies between China and its trading partners shifts in China's favor. This development enables China to enforce political compliance among its trading partners to an increasing extent."

China, the authors say, "considers the status of Tibet as an internal affair in which outside interference is rejected. In addition to purely diplomatic threats, China more-or-less openly threatens that it will respond to meetings between its trading partners' officials and the Tibetan leader with measures that will result in a deterioration of their trade relationships…By opposing any notion from abroad that might challenge the status quo of the region, China not only aims to contain the spread of unrest inside Tibet, but also seeks to weaken the worldwide Tibetan independence movement."

Using publicly available data from the United Nations and the World Bank, the study tracked exports from 159 countries trading with China from 1991 to 2008 in which exports to China dropped after the Dalai Lama met with heads of state.

"Our empirical results support the idea that countries officially receiving the Dalai Lama at the highest political level are punished through a reduction of their exports to China," the authors say. "Machinery and transportation equipment exports suffered the most consistent negative impact, while it disappears two years after meetings took place."

Specifically, "…a deterioration of the bilateral political climate and a decrease in bilateral diplomatic exchanges, as a result of foreign officials meeting the Dalai Lama, may lead to a systematic reduction of exports to China through government influence," the authors write. "For example, countries receiving the Tibetan leader might be punished directly through a reduction of trade missions and, thus, exports of goods typically purchased in the ambit of such missions. Also, tariff and non-tariff barriers might be raised as a response to receptions of the Dalai Lama by foreign officials."

The study cites several specific examples, including France, which was crossed off the travel agenda of two Chinese trade delegations in 2009 in retaliation for a meeting between President Nicolas Sarkozy and the Dalai Lama. Other European governments signed trade deals worth US$15 billion with the first delegation alone. Chinese Prime Minister Wen Jiabao apparently dropped a state visit to France in January 2009. When asked to comment on the itinerary of his European tour, Wen was quoted as saying: "I looked at a map of Europe on the plane. My trip goes around France."

Also, before Italian Prime Minister Silvio Berlusconi's reception of the Dalai Lama in 1995, according to the authors, "the Chinese prime minister warned his Italian counterpart that "if this [the Italian] government will adopt a policy that could damage a matter of principle [for China], it may also damage trade relations."

Facing potential trade retaliation by the Chinese, Berlusconi openly admitted to the Dalai Lama that the international community was facing a dilemma, "caught between the importance of maintaining trade relations and protecting human rights." Berlusconi stood up to the Chinese and allowed the visit.

In contrast, Germany's political leaders refrained for a long time from meeting with the Dalai Lama. In this regard, German foreign policy was aimed at avoiding political conflict over human rights issues with China, so as not to endanger lucrative trade ties with the emerging economy,the authors say. "The decision to meet the Tibetan leader despite Chinese threats was judged as 'courageous' by both the Italian media and the Dalai Lama himself."

The Dalai Lama effect appears to have reached US President Barack Obama as well. The leader of the world's lone super power met the Tibetan exile leader in the map room of the White House rather than the Oval Office. With rows on over imports and exports of meat, car tires and raw materials in the spotlight, Chinese Vice-Foreign Minister Cui Tiankai summoned the US ambassador to express China's discontent.

Alistair Thornton, a China analyst with HIS Global Insight, told CNN: "The possibility remains that Chinese companies are taking it upon themselves to curb trade links, rather that it being a direct order from the highest levels. As machinery tools are strongly linked to trade missions, and the government controls the trade missions, the government would appear to be in control here. But it could be less that the government has ordered a freeze on imports, rather than removed one easy way for companies to strike deals for those imports" said Thornton.

"It is unfortunate that the Chinese government views everything His Holiness does through a political angle," said Tenzin Taklha, the Dalai Lama's representative in Dharamsala. "His Holiness has no intention of causing any inconvenience to the host country he visits."

China does have an interest in eventually restoring its commercial relationships, the authors write. "On the other hand, they have interest to really show their anger about a Dalai Lama reception or meeting" Fuchs said.

A clear example to this is the recent trip by the Chinese President Hu Jintao to France. After Wen blasted Sarkozy two years ago, Hu and Sarkozy met in a changed atmosphere. The business leaders signed deal after deal including an agreement by Chinese companies to buy 102 aircraft from Airbus Industrie. French companies will also sell uranium and technology, making the total package worth US$22.8 billion.

Certainly the finding reveals China mixes business with its political agenda. "We find strong evidence that bilateral political relations matter for trade with China," Fuchs and Klann sum up. "Chinese trade relations are not free of political bias and the country seems to exploit trade ties as a foreign policy tool."

The Economist, by Saransh Sehgal writer based in Dharamsala, India.

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