Market Overview

China Tells US to Ease Hi-Tech Export Restrictions at Trade Event Housing a Fake Armani Store


American participants at the U.S.-China Joint Commission on Commerce and Trade meeting in Chengdu, China clashed with their Chinese counterparts as they tried to agree to terms that would improve trade relations between the world's two biggest economies.

U.S. Commerce Secretary John Bryson said that the trade talks failed to make as much progress as was hoped for and warned his Chinese hosts that the American business community and the United States Congress were both moving towards a "more negative view of our trading relationship" with China.

While the American participants focused on issues like the artificially low value of the Chinese currency and widespread intellectual property theft in China, the Chinese were more interested in lowering trade barriers between China and the United States. Addressing American concerns over a growing trade imbalance between the two countries, Chinese Vice Premier Wang Qishan said that the the two countries would benefit from freer trade and that an unbalanced recovery would be better than a balanced decline.

Vice Premier Wang Qishan also said that his government was making progress in its efforts to protect intellectual property rights and repeated calls from China for the United States to increase exports of hi-tech products to China. However, the United States' complaints about poor enforcement of intellectual property rights in China were underscored by the fact that the hotel hosting the trade talks is home to a clothing store called “Amornini”, complete with a logo similar to the logo of the Italian company Giorgio Armani.

The Chinese have long said that the United States should ease trade restrictions on sensitive technology products and that doing so would go a long way in reducing trade imbalances between the two countries. However, when the very hotel hosting sensitive high level trade talks between the two countries is profiting from intellectual property theft, it's difficult to to see the American stance changing any time soon.

Investors who feel that despite the embarrassing gaffe of having a knock off Armani store in the same hotel that is hosting an important meeting on American-Chinese bilateral trade, the meeting between Chinese and American officials will lead to freer trade between the two countries have a number of investments to consider. If China is allowed greater access to the American market and American technology, the iShares FTSE China 25 Index Fund (NYSE: FXI) and the Global X China Technology ETF (NYSE: CHIB) funds could both move higher.

However, as China shows few signs of actually doing anything to stop intellectual property theft, any relaxing of trade restrictions between the two countries could hurt ETFs like the iShares Nasdaq Biotechnology Index (Nasdaq: IBB), ProShares Ultra Technology (NYSE: ROM) and Direxion Daily Technology Bull 3X Shares (NYSE: TYH), while benefiting ETFs like ProShares UltraShort Technology (NYSE: REW) and ProShares UltraShort Nasdaq Biotech (NASDAQ: BIS).

Although technology and biotech companies could get a short term boost from increasing sales in China, they could lose out in the long run if their products are reverse engineered and sold at lower prices by Chinese competitors who have the advantages of low wages, an artificially low currency and low research and development costs.

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