| Tolerant Tim | |
| John Foley / June 1, 2009, 1:45 IST | |
Geithner/China: No more Mr Manipulator. Timothy Geithner, the US Treasury secretary, visits Beijing next week for the first time since taking office. But don’t expect a reprise of the angry tone that saw him swipe at China in January for manipulating the value of its currency. This time, Geithner is likely to leave the verbal grenades at home.
Instead, Geithner will ask China to accelerate its transformation from a country driven by exports into one driven by private consumption. That’s a bit like shouting at the moon. Private consumption in China is growing, but remains tiny for such a large economy. A Rmb4 trillion ($585 billion) fiscal stimulus is a temporary stopgap.
Chinese premier Wen Jiabao will no doubt do some lunar petitioning of his own, asking that the US act responsibly on the value of the dollar, in which China holds some $1.7 trillion of foreign exchange assets. Trillion-dollar deficits mean there’s little chance of that, but Geithner will no doubt agree anyway.
Nice-guy diplomacy is fine, as far as it goes. There certainly isn’t any point in either side lashing out at the other. After all, these two supertanker economies are still locked together. America needs China to keep buying US government bonds to fuel its giant deficits. China remains the US’s most important customer.
But this shouldn’t disguise the fact that the China-US trade relationship needs rebalancing. Eventually, the Chinese export sector has to slim down - with painful consequences for displaced workers. Total lifetime social security benefits - a big influence on consumers' propensity to spend rather than save - are just $60 per person, according to Morgan Stanley.
The adjustment should also include a further rise in the renminbi vis-à-vis the dollar. Beijing's previous policy of gradual appreciation, which saw the currency rise 20 per cent in three and a half years, was put on ice when the crisis hit. A pricier renminbi would help the US to reduce its trade deficit and spur Chinese consumers to import cheap goods.
Geithner has learned that lashing out is pointless. Turning around supertanker economies takes a long time. But turn around they must.
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