China Appeals to US to Focus on Economic Recovery
Chinese commentators are marking a visit by Vice President Joseph Biden by offering a struggling United States advice: Stop flooding your economy with cheap credit.
The prescriptions awaiting Biden, who arrived Wednesday in Beijing, range from cutting government budget deficits to fighting poverty. They were similar to the advice of Western analysts but unusually pointed for China where communist leaders say governments should stay out of each others’ affairs, and show the shifting fortunes of the two powers.
"The United States has entered a long period of decline," wrote economist Xia Bin, who advises China’s Cabinet and central bank, on his blog.
The main purpose of Biden’s mission is get a better bead on Vice President Xi Jinping, who is expected to take over as Communist Party chief next year and will visit Washington later this year. Biden is also expected to get an earful on Tibet and Taiwan, the democratic island Beijing claims and which Washington provides arms to. But Chinese worries about the U.S. economy are the subtext for the five-day visit.
Beijing’s biggest fear is a possible third round of bond-buying by the Federal Reserve, known as quantitative easing or QE. It is supposed to push down interest rates and boost investment by injecting money into the economy, but Beijing worries that it will boost prices of commodities traded in dollars, fuel inflation and erode the value of its $1.2 trillion in Treasury debt.
"The U.S. should refrain from launching QE3 and tighten its monetary policy to raise the world’s confidence in the dollar," the chairman of state-owned Bank of China, Xiao Gang, wrote Wednesday in China Daily, an English-language newspaper aimed at foreign readers.
Beijing has repeatedly appealed to Washington to protect foreign investors and the dollar. It has avoided publicly making specific demands but this week’s commentaries in the entirely state-controlled press make clear what it wants to see.
"China has much at stake over U.S. economic policy changes and a stable U.S. dollar," the official Xinhua News Agency said. Resolving economic problems in a "responsible manner" would improve U.S.-Chinese relations, it said.
Other governments complain earlier Federal Reserve efforts to reduce interest rates prompted investors to move money to developing economies in search of higher returns, pushing up the value of their currencies and prices of their exports.
China’s own government debt is low compared with those of the United States, Japan and European countries, even after a huge stimulus that helped it rebound quickly from the 2008 global crisis.
The press campaign also might help Beijing diffuse criticism it faces from some Chinese in comments posted on Internet sites questioning its decision to invest so much of its $3.2 trillion in foreign reserves in Treasury debt. Treasurys are seen as one of the lowest-risk assets but the debate in Washington over raising the government debt limit and downgrade of the U.S. credit rating by Standard & Poor’s caused alarm in China.
"By focusing concern on the failures of U.S. policymaking, as China sees it, Chinese officials are able to deflect attention from their own part in creating some of the global imbalances and the decision that lay entirely in their hands to invest so much in U.S. Treasurys," said Capital Economics analyst Mark Williams.
Beijing faces its own debt problem after it disclosed that local governments owe $1.6 trillion in bank loans that paid for public works and other expenses. But analysts say high economic growth means it should be easily manageable.
Bank of China’s Xiao and other commentators said Washington should focus on longer-term reforms to cut its budget and trade deficits, raise savings and create jobs.
"They should set out to solve the poverty issue," a researcher at Peking University’s Development Research Institute, Xu Jianguo, wrote in the Global Times, published by the Communist Party flagship newspaper People’s Daily.