Treasury Secretary Timothy Geithner arrived in China this week to
continue the ongoing dialogue between the world's two largest
economies, and definitely avoid talk about political reform. But
democracy of a sort was on his agenda: The Chinese public doesn't trust
its government's investments in American dollars, and the popular
pressure is forcing Chinese officials to criticize America's economic
policies. That gave Geithner a two-fold task this week: placating
Chinese officials nervous that the Obama administration's spending
plans could undermine the value of the dollar, and, more important,
urging China to adopt new policies to dramatically change the focus
of its economy.
Geithner was at pains to assure his Chinese counterparts that the
Obama administration has the fiscal situation well in hand, even going
so far as to promise a budget deficit of 3 percent of gross domestic
product after the recession. It's not a new or unwelcome projection,
though it is rare to hear such a specific target cited on foreign
shores.
But outside of the political sideshow, the much-hyped Chinese
ownership of U.S. debt and the controversy over exchange rates (which
has led some Americans to accuse the Chinese of currency manipulation)
isn't likely to change in the near future.
"The truth is … China really has no choice," Michael Pettis,
a professor at the Guanghua School of Management in Beijing, says in an
e-mail. "China does not want to hurt its export sector (on the
contrary, it is trying to prop it up), and since no one else besides
the United States can run such large trade deficits, China has no
choice but to keep buying dollars."
If exchange rates and international reserves are something of a
settled -- albeit controversial -- issue in both countries, the actual
discussions are about changing the relationship of the two economies.
For several years now, both China and the U.S. have been contemplating
a kind of economic balancing act designed to provide long-term growth
for both countries, and, incidentally, remove the incentives that lead
to the stalemate over exchange rates and foreign reserves. (Tim Fernholz, American Prospect)
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