China Plans to Buy Ethanol, Count Hong Kong Trade in U.S. Pledge
China is considering re-routing trade that currently passes through Hong Kong to mainland ports.
(Bloomberg) -- Further details are emerging on how China would increase imports from the U.S. by as much as $200 billion over the next two years in order to meet its commitments under the phase one trade deal announced last week.
That accord, yet to be officially signed, includes reaching purchases of $40 billion to $50 billion per year in agricultural commodities, a level some analysts have doubted is feasible. To help attain that figure, Beijing plans to restart purchases of ethanol by lifting or waiving trade war tariffs on the fuel, said people familiar with the matter, who asked not to be identified discussing the plans.
In addition, China is considering re-routing trade that currently passes through Hong Kong to mainland ports, the people said. That could enable around $10 billion a year in goods transshipped there from the U.S. to be directly booked in the mainland, boosting the tally. The U.S. does not count shipments that go through Hong Kong as part of its trade with China.
Leaders are carefully weighing how to approach addressing the so-called entrepot trade via Hong Kong, as it would be a further blow to the city’s embattled economy and risks worsening political tensions there, one of the people said.
China’s Ministry of Commerce did not immediately respond to a fax seeking comment.
China will also grant more regular waivers on retaliatory tariffs to local buyers of U.S. farm products including soybeans and pork, the people said. In November, China lifted its ban on U.S. poultry shipments as part of trade negotiations, with the U.S. estimating exports would top $1 billion a year.
Trade Representative Robert Lighthizer has said the Chinese made detailed commitments on agriculture that would see them purchase at least an additional $16 billion annually in commodities on top of the pre-trade war level of $24 billion and endeavor to buy as much as $50 billion annually. But detailed purchase targets on each commodity won’t be made public, he said.
Importing corn-based ethanol from the U.S. would help China make up for a slowdown in domestic production and meet a goal of expanding the blending of the cleaner fuel into gasoline in the world’s largest car market.
China imported about 200 million gallons of U.S. ethanol in 2016, according to the U.S. Energy Information Administration, but that door was shut in 2018 when taxes on imports were raised to around 70% because of the trade dispute. The U.S. exported a total of $2.4 billion of ethanol in 2017, a report by the Renewable Fuels Association showed.
--With assistance from Miao Han and James Mayger.
To contact Bloomberg News staff for this story: Niu Shuping in Beijing at nshuping@bloomberg.net;Steven Yang in Beijing at kyang74@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Sharon Chen
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