As China Flirts With Protectionism, What’s The Impact On ETFs?

As China continues to promote economic development and the prosperity of its economy and exchange traded funds (ETFs), could protectionism be emerging?

The nation has started to adopt policies that aimed at encouraging exports while curbing imports by expanding three programs to help exporters, states Keith Bradsher of The New York Times. The three programs include offering large tax rebates, more generous loans from state-owned banks to finance trade and more government paid travel to promote themselves at trade shows around the world.

In an effort to strengthen its own exporters, China has gone as far as to limit the amount of certain raw materials that can leave the country.  To stir up even more controversy, provincial governments have cut back on their enforcement of counterfeiting laws other intellectual property protections, making imports less appealing because of higher costs than Chinese counterfeits.  Lastly, China has halted the rise of the renminbi against the dollar by intervening heavily in currency markets, dumping billions in renminbi and buying dollars and other currencies.

On the one hand, these acts and policies can help ensure that China’s economy will continue to grow. On the other hand, it will increase global trade tensions at a time when more countries are resorting to administrative measures to restrict trade and the World Trade Organization has warned against protectionism. The European Union has already filed a complaint with the WTO accusing China of limiting exports such as zinc and bauxite, of which China is the world’s largest producer, to give an unfair advantage to Chinese manufacturers that use the materials.

• iShares FTSE/Xinhua China 25 Index (FXI): up 30.9% year-to-date.

• SPDR S&P China (GXC): up 34.2% year-to-date

• PowerShares Golden Dragon Halter USX China (PGJ): up 40.9% year-to-date

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