Hu faces critics in Congress, economic pressures back in China
China's President Hu met with US congressional leaders Thursday, amid reports that his country's economy may be overheating, driving up inflation. Is export-dependency the root of the problem?
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Others say Congress should ramp up pressure for currency and trade reforms, with the goal of reducing America's trade deficit and creating US jobs. Backers of this idea include Democratic Sens. Charles Schumer of New York, Bob Casey of Pennsylvania, and Debbie Stabenow of Michigan.Skip to next paragraph
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"China has been allowed to develop an unfair advantage while going virtually unchecked," Senator Casey said in a statement Monday. "A comprehensive approach is required to level the playing field."
Such legislation would give less flexibility to the Treasury Department in deciding whether to cite nations such as China for currency manipulation. It would impose stiff penalties on currency violators, including duties on exports and a ban on US government contracts.
Some economists, however, caution that such an approach could backfire, if it results in tit-for-tat trade barriers rather than a loosening of the yuan exchange rate. While conceding that some Chinese trade practices harm US businesses, they argue that the greatest risk to the global economy would be a reversal of the trend toward expanding global trade. With both the US and Chinese economies now growing, the hope is that rising commerce will help the world achieve a sustained recovery.
China's economy grew at a 9.8 percent annual pace in the fourth quarter of 2010, according to the government numbers released Thursday. That's similar to its pace for the whole calendar year, but China's government appears to be struggling to contain the supply of money – and the price pressures that result. Inflation in China, already higher than the government would like to see, could accelerate, many economists say.
Inflows of foreign capital and loose lending by Chinese banks have spawned "rampant credit creation," economists Alistair Thornton and Todd Lee of IHS Global Insight said in an analysis of the numbers. Still, although some economists warn of asset-bubble risks to China's economy, they argue that inflation has not reached dangerous levels so far.
IN PICTURES: Hu Jintao's Washington visit