U.S. raises heat on China to open its economy
Chinese household consumption remains low compared with other major economies. / AP
(MoneyWatch) U.S. Treasury Secretary Tim Geithner is pressing China to accelerate its economy's shift toward consumption-led growth and to let its currency gain in value.
"A stronger, more market-determined renminbi will help reinforce China's reform objectives of moving to higher value-added production, reforming the financial system, and encouraging domestic demand," he said Thursday at the opening of economic talks between the U.S. and China. "It will provide China the independence and flexibility to respond to future changes in growth and inflation."
Geithner spoke in Beijing at the two-day Strategic and Economic Dialogue, an annual bilateral meeting between senior U.S. and Chinese officials to discuss key political, economic, and other matters. He also urged China to boost Chinese household savings by revamping its financial system, reduce government support for state-owned enterprises, strengthen protections for intellectual property rights, and lower import barriers to foreign and domestic companies.
China's valuation of its currency, also known as the yuan, and large trade surplus with the U.S. has long been a source of tension between the countries. Critics accuse China of manipulating its currency to make the country's exports cheaper, resulting in a huge trade surplus with other major economies. The U.S. trade deficit with China reached an all-time high of $295.5 billion last year, up 8.2 percent from 2010's previous record.
That imbalance hinders the U.S. economic recovery by stifling job creation. Between 2001 -- when the People's Republic entered the World Trade Organization -- and 2011, America's trade deficit with China has cost the U.S. 2.8 million jobs, the Economic Policy Institute concluded in a recent report. That includes nearly 2 million manufacturing jobs eliminated or displaced over that period, according to the Washington think tank.
A stronger Chinese currency would help close the trade gap, U.S. officials contend. Geithner in April said that an undervalued yuan amounted to "unfair competition" and called for a "stronger, market-determined" exchange rate. But Chinese trade minister Chen Deming denied Thursday that China's currency is undervalued. "Given that China's global trade is basically balanced while running a surplus with the United States shows the exchange rate plays a minimal role in trade," Chen said, according to The Associated Press.
Under pressure to loosen monetary controls and stoke domestic consumer demand, Beijing has allowed the renminbi to appreciate 6 percent since mid-2011 and slowed its pace of accumulating dollars and other foreign currency.
Expanding those reforms, especially as the eurozone teeters on the edge of recession and with the U.S. recovery struggling to gain momentum, is seen as vital for driving global growth. Economic data as of 2011 do not show that consumption by Chinese housesholds is growing as a share of the country's GDP, according to the IMF.
"In China, you are in the process of exploring the next frontier of economic reforms, recognizing as your predecessors did more than 30 years ago, that future economic growth will require another fundamental shift in economic policy," Geithner said Thursday. "These new reforms recognize the new reality that China must rely more on domestic consumption rather than exports, and more on innovation by private companies rather than capacity expansion by state-owned enterprises, with an economy more open to competition from foreign firms, and with a more modern financial system."
Washington sought to raise the pressure on China to speed economic changes by announcing last month that it would impose new tariffs on Chinese-made solar panels.
The Associated Press contributed to this report.
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