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Experts Predict Increasing Friction in US-China Economic Relationship


China's president, Hu Jintao, comes to Washington later this week for a meeting with President Bush, and economic issues are likely to figure high on the agenda of the talks between the two leaders. On Monday, the Washington-based Institute for International Economics hosted a forum to discuss those issues.

China's economy has doubled in size since 1997 when a Chinese president last visited Washington. Beijing's economy continues to grow fast, registering a 10 percent growth rate in the first three months of the year. Nick Lardy, a China specialist at the economics institute, expects that rapid growth will continue. "I don't know if we'll continue at exactly those rates in the indefinite future, but the expectation should be that this economy will continue to grow rapidly, that its trade will continue to grow more rapidly than its domestic economy and that it will continue to have an increasingly expanding global footprint," he said.

Already the world's fourth largest economy, if current growth rates continue, China in 30 years would overtake the United States to become the world's biggest economy.

Certain to be discussed in the meetings between Presidents Hu and Bush will be China's large trade surplus with the United States, which added up to 200-billion dollars last year.

Many U.S. analysts blame the imbalance in large part on China's currency, which they say is artificially undervalued. This makes Chinese goods cheap in dollar terms and gives exporters an unfair trade advantage. Deputy Secretary of State Robert Zoellick says while China claims it wishes to revalue its currency to redress the imbalance, substantive change has been slow. "China seems to be saying the right things. It seems to be embedded in its program. The head of the Peoples Bank talks about this in a way that suggests they are going to move in the right direction. But the process of change seems agonizingly slow," he said.

Since abandoning its decade long peg to the dollar last July, China's currency, the yuan, has gained only three percent against the dollar.

If the revaluation of the yuan continues at this slow pace, Fred Bergsten, the director of the Institute for International Economics, says anti-China protectionist sentiment in the U.S. Congress could escalate, particularly if U.S. growth slows from its current three percent pace. "So just think what happens if the US economy turns down, unemployment turns up, the global trade deficit hits a trillion dollars, the bilateral deficit (with China) hits 300 billion dollars and rises. That is a formula for all hell breaking out, in terms of the world trading system," he said.

Speakers at the forum described China's economic advance over the past decade as both momentous and challenging. Though U.S. economists may question Beijing's currency policies, many speakers at Monday's forum had high praise for other aspects of China economy, describing it as wide open to trade and investment and one in which market forces are now dominant.

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