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.

U.S. presses China over currency in economy talks
China economy sends mixed signals

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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"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."

In 1990 30% of the US GNP was manufacturing. 10% was financial services.

Somewhere along the line, people in our Govt. decided to throw manufacturing under the bus and push financial services. By the mid 2000's, we were sitting at 30% GNP for Financial services, 10% GNP for Manufacturing.

To do that, the Govt. rolled over for wall street and the bankers and corporations. Repealed the Glass-Steagall Act and passed the Gramm-Leach-Bliley and the Commodity Futures Exchange Act of 2000.

All that was supposed to create more American jobs. It didn't. Pie in the sky. All it did was make the Rich richer and the poor poorer.

Instead, the experiment turned into a total disaster. By 2008, the new financial behemoths almost destroyed the world financial system and left American short on living wage jobs and weak in manufacturing.

Truly fixing this situation should be national security issues of the highest order.

No nation in history has every "made it" on financial services being a large part of their GNP. Not a single one. Everyone of them that tried, failed. Because you can't sustain any kind of real growth by playing shell games with money. There's no substitute for making things and selling them to people overseas. But for some reason, the idiots that run our Govt. figured that it would just "be ok" to give all that power to greedy bankers and shareholders.

Wrong answer.

The damage to our overall society has also damaged our countries financial health and manufacturing might, which is the true source of our military power. Military might, at the end of the day, is the ultimate decision maker of who controls what. People in our Govt. and Wall Street seem to have forgotten that. They think they are the true source of power.

Wrong answer.

The people running the Govt and Wall Street are playing a very dangerous game by selling the nation out by sending so many jobs overseas. It's cost our treasury and workers trillions of dollars.

The financial experiment is a failure. Offshoring manufacturing is a failure. They have both seriously weakened our Nation, all so a handful of Rich people can make extra profit.

Stop it. Reverse these experiments before it's too late. Reset the financial laws to what they were before 1999. Bring manufacturing back to the US with strong incentives. Give NO incentives to move them out, penalize them for being overseas.

It's the only way we can become strong again. Placing your faith in China to do what we want them too is a fools dream. China will challenge us for dominance someday soon and not a single Wall Street Banker or American CEO or Rich Shareholder will have any skin in that game or stomach for dealing with the monster they have created. They will stand back, after creating the entire problem, and dump it on the nation and the middle class and the poor to deal with.

Get your act together Washington before it's too late.