RPT-GLOBAL ECONOMY WEEKAHEAD-Dampening the U.S.-China fireworks

Mon Jan 17, 2011 7:00am EST

 By Emily Kaiser
 WASHINGTON, Jan 16 (Reuters) - Chinese President Hu
Jintao's visit to Washington this week may be the calm after
the storm when it comes to economic relations between the
world's two biggest economies.
 The last time Hu and President Barack Obama met
face-to-face was at the Group of 20 leaders summit in Seoul in
November, when Washington was on the defensive because of
widespread criticism over the Federal Reserve's $600 billion
bond-buying program.
 Instead of pressuring China to allow its yuan currency to
rise more rapidly, Obama found himself trying to convince
allies that the United States was not intentionally devaluing
the dollar to gain a trade advantage.
 Back then, China's Vice Foreign Minister Cui Tiankai said
"they owe us an explanation" over the Fed's bond buying, and
admonished the U.S. central bank to "consider the impacts on
other countries in the world when they make their decisions,
not just their own economy."
 The circumstances will look a little different when Hu
visits the White House on Wednesday.
 Currency tensions have cooled somewhat. China's high
inflation means the yuan has appreciated in real terms
considerably more than the nominal exchange rate shows.
 Republican party gains in the U.S. Congress suggest there
may be less pressure coming from lawmakers to label China a
currency manipulator or impose stiff new tariffs.
 "There isn't the unified sense that there was before the
mid-term elections that the U.S. needs to go after China," said
Eswar Prasad, a Brookings Institution economist and former
International Monetary Fund official.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 Preview of China's GDP [ID:nTOE70B04I]
 Analysis on U.S.-China trade nTOE70903P
 Full coverage of U.S.-China summit [ID:nL3E7CA05U]
 Breaking Views: China yuan investment a nod in right
direction [ID:nLDE70D0PI]
 Graphics:
here
 IFR US economics weekahead:
 link.reuters.com/sar56r
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 As for those fears about the Fed inflicting dollar damage,
the dollar has actually strengthened against a basket of
currencies since the central bank announced its bond-buying
plan in early November.
 Hu will also be able to point to China's latest trade data
showing December exports were not as strong as most economists
expected. Comparable U.S. data is not yet available, but
figures for November showed exports to China hit a record high
of $9.5 billion, bolstering China's argument that it is doing
its part to rebalance global growth.
 Cui, the vice finance minister, once again spoke out ahead
of this week's summit, but his tone was softer than in
November. His most pointed comment was that Beijing would
welcome assurances its financial assets in the United States
were safe. For more, see [ID:nTOE70B038]
 U.S. Treasury Secretary Timothy Geithner shrugged that off
as nothing more than "the kind of things that you typically see
... foreign ministry people say in the run-up to these
meetings. It's the typical pattern, nothing exceptional or
interesting in this."
 SORE SPOTS
 To be sure, there are still plenty of trade frictions.
 The U.S. trade deficit with China swelled to $252.4 billion
through November, up 21 percent from the same period a year
earlier. China's foreign exchange reserves climbed to $2.85
trillion in December, much of it held in dollar-denominated
assets, making China Washington's largest creditor.
 U.S. Commerce Secretary Gary Locke called for "more
equitable" trade with China in a speech last week and said
China does not always follow through on its promises.
 Obama will no doubt press Hu to make good on pledges to
enforce intellectual property protections and open the doors a
bit wider to U.S. businesses, which have long complained about
unequal access.
 And yes, Obama will renew an oft-repeated call for China to
allow the yuan to rise even more rapidly.
 Many economists expect that plea to receive a somewhat more
favorable reception now because China is struggling to tamp
down inflation, and a stronger yuan would be a useful tool. By
tying a rise to domestic needs rather than foreign demands,
China could do what Washington wants without appearing to bow
to outside pressure.
 Chinese inflation data, scheduled for release the day after
Hu's White House visit, is expected to show a 4.4 percent
year-over-year rise in the consumer price index. That would be
a modest cool-down from November's 5.1 percent reading, but
still uncomfortably high.
 Prasad, the Brookings economist, said thanks to the
political shift in Congress and the inflation-driven rise in
the yuan's real effective exchange rate, both sides feel less
pressure now.
 "This creates a little bit of space in the short term for
them to back off from a confrontation stance and focus on
long-term strategic issues," he said.
 (Editing by Dan Grebler)


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Comments (1)
morristhewise wrote:
Simplicity many times clarifies an issue. The problem between the US and China is no different than the one in which a handsome kid moves into the neighborhood and dates the best looking gals. One possible solution to the problem is to ask the handsome kid to leave some of the pretty gals alone so the rest of the guys can get a date. But the problem remains because the gals only want to date the handsome guy. Begging China to share some of the worlds business is no different, the customers remain attracted to the best deal.

Jan 17, 2011 8:55am EST  --  Report as abuse
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