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China economy balancing against USA economy
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CHINA situation

“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” says Brad Setser, a fellow at the Council on Foreign Relations in Washington. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40 percent of GDP.”

China's five-year plan through 2010 seeks to rebalance growth away from exports -- so far, without significant result. Household consumption slumped to slightly more than 35 percent of China's gross domestic product last year from 45 percent in 1993. By contrast, consumer spending represents more than two-thirds of the U.S. economy

More than 10 million migrant workers lost their jobs in China during the first 11 months of this year, Caijing Magazine reported Dec. 17, citing a Labor Ministry official.

The total will likely grow in 2009. The World Bank forecasts that global trade, which grew 6.2 percent in 2008, will shrink by 2.1 percent next year, the first such contraction since 1982.

The collapse in overseas demand is exposing China's years of overinvestment in industries such as automobiles and telecommunications.

China's steel industry, the world's largest, is sitting on a stockpile of 63 million metric tons, equivalent to about 13 percent of annual production, and Baosteel Group General Manager He Wenbo said in November that his company was facing the “most difficult” period since it was founded 30 years ago.

In the U.S., factory payrolls have shrunk by 4 million during the eight years of the Bush administration, and total job losses this year may top 2 million.
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OBAMA plans:
 

Obama made specific pledges on the campaign trail to take a tougher approach to China than the Bush administration did. He has said the failure by Bush and Paulson to label China a currency manipulator was “unacceptable,” and he endorsed legislation to let U.S. companies seek import duties to compensate for the advantage an undervalued currency gives their Chinese competitors.

Obama also pledged to reverse course from Bush and consider petitions seeking higher tariffs on specific Chinese products.

American businesses, labor unions and lawmakers are already gearing up to force Obama's hand. Steelmakers, paper producers and textile companies are preparing trade complaints that could lead to increased tariffs. Unions and lawmakers plan to push measures to force China to raise the value of its currency.

McGregor says Obama's China policy will require a balancing act “fundamentally different” from what his predecessors faced: Obama's Treasury will need to fund a budget deficit heading for $1 trillion this year and “you don't scream at your banker.” China's holdings of U.S. Treasury securities, at $653 billion, are the world's largest.

That means an increase in trade tension “is very easy for China to handle,” says Guan Anping, a managing partner of Beijing-based law firm Anjin & Partners and a legal adviser to former Vice Premier Wu Yi until 1993. “China can react by reducing its purchases of U.S. government bonds.”

Even so, the Obama administration may not need much prodding to take a harder line on the currency issue, says William Reinsch, president of the National Foreign Trade Council and a former Clinton administration trade official.

“There will be consequences,” he says. “But they will do it anyway, if only to distinguish themselves from Bush.”
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source: http://www.bloomberg.com/apps/news?pid=20601068&sid=ai3pbN.JY7tY&refer=home
 


 




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