BEIJING, Dec. 21 (Xinhua) -- The Bush administration recognized Tuesday in a report to Congress that China is not manipulating its currency to gain unfair trade advantages.
This is good news for China, which is racing against time to cure the problems that threaten its long-term healthy development.
The United States has been pushing the Chinese government to quicken reforms in a variety of sectors, the latest move being the visit to Beijing by a high-profile delegation led by Treasury Secretary Henry Paulson.
The two sides talked for two days in the Great Hall of the People, but it seems their recipes for solving bilateral economic problems are radically different.
The U.S. side claims that the Renminbi yuan is undervalued and "distorts" patterns of production and trade, that the Chinese government has not done enough to protect intellectual property, that China should further open its service sector, and that China is not transparent enough.
Vice-Premier Wu Yi, the top Chinese negotiator, commented that "some American friends appear to know little about China and misunderstand the reality of the country."
Judging from remarks made by the two sides, there is considerable agreement about what the problems are but big differences about how soon they can be solved.
An analogy is the remedies proposed by different doctors for the same disease: modern western medicines can deliver a quick but sometimes superficial cure, while Chinese medicinal herbs take time to work but deal with the underlying causes of the problem.
Chinese people often say: if the problem is acute, use western medicine, but if it is chronic, you would be better off using herbs.
None of the "diseases" affecting the Chinese economy are new: an inadequate social security system, environmental pollution, a very high savings rate leading to anemic consumption, non-performing bank loans, to name just a few.
These problems were entrenched even before China shifted from a centrally-planned to a market economy in the early 1980s, so any attempt to provide an overnight cure would be very dangerous.
Everyone knows, for example, that China must do something to check severe environmental pollution, but the government has to mull things carefully before taking measures to deal with polluting factories. Increased pollution-control costs will force many factories to shut down, which will in turn lead to rising unemployment and social disorder.
So far the Chinese government has mainly pursued a "herbal approach". New pollution control policies have been formulated to discourage the export of energy-consuming and pollution-generating products, and a series of measures have been taken to help factories reduce pollutants and to encourage non-polluting industries.
Likewise, China is adopting a step-by-step approach to the revaluation of the RMB, setting a daily floating band of three percent around the central bank's parity trading price. Since China reformed its exchange rate system in July 2005, the RMB has risen in value by some five and a half percent against the dollar.
Even this moderate appreciation has had a huge impact on China, with stock prices more than doubling to reach historic highs and housing prices rocketing. With international speculative money targeting the yuan, a sharp appreciation of the national currency would be more than the Chinese economy can bear--as is well-known, too strong a dose of medicine can kill the patient.
The U.S. should not interpret Wu Yi's comment as a rebuke. In the five years since China entered the WTO, the country has gone through enormous changes in all sectors of its economy, with the opening of the banking sector just the latest in a long series. Chinese leaders get frustrated when foreign counterparts fail to recognize the scale of the changes.
Many senior officials and experts, both Chinese and foreign, have given China high marks for its performance in the WTO. They acknowledge that China has been a major contributor to the world economy in recent years, and that any drastic change in the Chinese economy would have an adverse affect on the world economy and on the American economy.
Wu Yi said at the talks, "our particular hope is to let people everywhere know that China's development represents an opportunity and not a threat to the world, that China is a key contributor to world economic growth."
The trade imbalance between the two countries is of great concern to both sides. While the Chinese government encourages its people to save less and consume more, the Bush administration is being urged to preach the opposite message. But can the U.S. change deep-rooted American behavior quickly, with a rapid cure?
by Xinhua writer Xu Xingtang
