Mainland is facing a loss of $31 billion

PUBLISHED : Sunday, 06 April, 2003, 12:00am
UPDATED : Sunday, 06 April, 2003, 12:00am

China could lose more than US$4 billion (HK$31.2 billion) from the overthrow of Saddam Hussein, with unpaid bills accounting for a third of that figure, a government specialist said.


Economist Mei Xinyu calculated the figure by adding the debts that the Iraqi government owed to China to the value of contracts already signed.


Mr Mei's findings, published in the 21st Century Business Herald, provide the first detailed analysis of China's potential losses from a change of regime in Iraq.


The debts amount to US$1.3 billion, of which US$466 million is owed for Chinese exports and US$880 million for roads, bridges, hospitals and other construction projects carried out by Chinese firms, most of them before the first Gulf war in 1991.


The contracts, for engineering work and import of Chinese labour, totalled US$2.7 billion, said Mr Mei, from the Institute of International Trade and Economic Co-operation of the Ministry of Commerce.


Taking advantage of the absence of western and Japanese companies, Chinese firms were active in Iraq during the 1980s.


They also sought opportunities after December 1996, when the United Nations instituted the 'oil for food' programme, allowing Iraqi oil revenue to pay for food and medicine.


Chinese companies fear that a US-installed government will repudiate the Hussein regime's debts.


In addition, a pro-US administration in Baghdad may give contracts for reconstruction only to companies from favoured countries, excluding those from China, Mr Mei said.


The economic impact of the war may spread beyond Iraq to its six neighbours - Iran, Turkey, Syria, Jordan, Kuwait and Saudi Arabia - which last year imported more than US$5 billion of Chinese goods and exported US$6.6 billion in return, accounting for 2.2 per cent of China's trade.


Chinese exports to the six countries have more than doubled since 1997, and imports from these countries have more quadrupled in that period.


In terms of Iraq's neighbours, Chinese companies are hoping that a quick war will enable an equally quick recovery in trade with the region.


Under a protracted war, these companies fear that opportunities for engineering projects and the export of labour - which require political and social stability - will suffer. The country is a leading exporter of workers.


A quick war will have a mixed impact on China.


A revival of American and British stock markets is good news for China, because it runs the biggest trade surplus with the US.


Britain is one of its largest trading partners in Europe.


However, a rise in stocks usually means a fall in the value of bonds.


Most of China's US$300 billion of foreign exchange reserves is held in foreign government bonds, especially US treasuries. The value of these assets would fall under a rising stockmarket.


The speed of the war will also affect the strength of the US dollar, to which the yuan is pegged.


A long war would mean a weaker dollar and therefore a weaker yuan, while a short war would have the opposite effect.