China to flex its financial muscles at US meeting
- 8 May 2011
- From the section Business
Long a target of US criticism on a range of issues, China will raise its own urgent concerns about America's shortcomings during an annual meeting in Washington.
Led by Vice-Premier Wang Qishan, a frequent visitor to the US capital, the Chinese delegation will urge its US counterparts to tackle the country's massive budget deficit.
The US deficit is expected to swell to a record amount this year because of a weak economy and continuation of tax cuts for the rich.
Zhu Guangyao, China's vice-finance minister, told reporters ahead of the Strategic and Economic Dialogue: "We are paying a lot of attention to this."
"We hope that the United States, in its fiscal clean-up, will be able to adopt effective measures based on President Obama's proposal."
The White House is holding talks with rival Republican lawmakers to trim the budget deficit.
Mr Zhu's comments were unusually strong for a Chinese official, especially coming just ahead of bilateral talks.
China likes to pride itself on not pointing its finger at other countries' internal policies.
But Beijing is worried, because it is America's top banker.
It has more than $3 trillion (£1.82 trillion) in foreign exchange reserves, about two-thirds of which are believed to be held in US dollars.
That means the value of China's savings is directly tied to the health of the US economy.
And some economists believe America's sovereign debt will continue to grow.
They say the US may even default on its debt in some form, if lawmakers cannot agree on how to resolve the problem.
A US default would be disastrous for Beijing, both financially and politically.
So, in a reversal of the usual roles played by rich and poor countries, China will be pressing Washington to clean house.
Mr Zhu says China wants to make sure Washington enacts policies to create jobs and drive economic expansion.
On the perennially thorny issue of China's currency, the debate may be less contentious than in years past, according to US officials.
That is because China is fighting inflation, a problem that is causing social and political tension.
"We absolutely see a change in tone in our discussions," says David Loevinger, a senior US Treasury official.
"They are talking more and more about how a stronger RMB can help them contain inflationary pressures in China."
Some economists believe the Chinese central bank is clearly allowing its currency to rise faster than it otherwise would, in order to reduce import prices.
China imports much of its fuel and food, including staples such as soybeans and meat.
A stronger currency would make those items more affordable, especially for hundreds of millions of rural poor.
China's Mr Zhu says the two sides broadly agree the yuan must continue to strengthen against the US dollar, but they differ on the speed of appreciation.
For years, Washington has pushed Beijing to allow the yuan to rise faster.
China granted that wish in 2005, when it ended its peg against the US dollar.
Since then, the yuan has risen by almost 30% against the greenback.
But US manufacturers say the Chinese currency should strengthen by another 40%.
And within the US government, some lawmakers regularly accuse Beijing of manipulating its currency, which they say costs American jobs.
The US Treasury has delayed issuing a report that could have named Beijing a currency manipulator.
Treasury Secretary Tim Geithner, who is co-leading the US delegation along with Secretary of State Hillary Clinton, is likely to push his Chinese counterparts behind the scenes.
The Strategic and Economic Dialogue was started five years ago to give the world's top two economies a regular chance to meet face to face.
As China grows in confidence, and economic power, it is sure to seize the opportunity to tackle its own concerns as an equal partner.