Obama Meets Hu as Stimulus Plans May Heat Clashes

 

  

April 1 (Bloomberg) — Presidents Barack Obama and Hu Jintao meet for the first time today to discuss a global economic crisis each is trying to combat with policies that may further complicate U.S.-China relations.

As they meet ahead of a gathering in London with other leaders from the Group of 20 advanced and emerging economies, the two presidents are directing a combined $1.4 trillion of stimulus spending.

While their efforts will soften the impact of the global recession, analysts say U.S. spending to stimulate demand and China’s focus on investment in public works are likely to exacerbate the global imbalances that inflated asset bubbles and brought on the collapse of credit that helped trigger the current crisis.

The two countries remain locked in “an unhealthy embrace,” said Charles Freeman, a U.S. trade negotiator who is now at the Center for Strategic and International Studies in Washington. “How we ease that embrace so we can stay embraced but not choke ourselves to death in the process is going to be a serious thing that we deal with in the next decade.”

Obama’s $787 billion stimulus package runs up budget deficits to be financed by more Chinese purchases of U.S. debt. Such a prospect leaves Chinese Premier Wen Jiabao “worried” about the safety of China’s $740 billion holdings of U.S. Treasury securities, the world’s largest, he said March 13.

China’s Stimulus

Meanwhile, Hu’s 4 trillion yuan ($585.4 billion) stimulus plan doesn’t help build the domestic consumer demand that China needs to support its own industries and reduce its reliance on exports, says Ha Jiming, chief economist at China International Capital Corp. in Beijing.

The plan will “delay a rebalancing toward greater consumption-driven growth because about 75 percent of its spending is for infrastructure,” Ha says.

Unless the two countries break a cycle that requires China to continue lending so the U.S. can keep spending, “we’re headed to another major crisis, and it could be worse than this one,” Stephen Roach, Morgan Stanley’s Asia chairman in Hong Kong, said in an interview.

Obama administration officials say that, with the global economy forecast to shrink in 2009 for the first time in more than 60 years, this isn’t the time to address such issues.

More Demand

“The old global-imbalances agenda was more demand in China, less demand in America,” Lawrence Summers, director of Obama’s National Economic Council, said in a Financial Times interview published March 8. “Nobody thinks that is the right agenda now. There’s no place that should be reducing its contribution to global demand right now.”

Roach and Ha say China’s investment in public works needs to be accompanied by a bigger boost in spending on social security and health care. That might free up private savings for more domestic consumer spending, which could increasingly replace exports as a source of growth.

Roach called China’s three-year, 850 billion-yuan plan to expand health-care coverage “peanuts,” averaging less than $100 for each of China’s 1.3 billion people.

China could also expand its social security fund. At the end of last year the fund had 562.5 billion yuan, or about $63 per person.

“I’ve been quite disappointed that they haven’t done anything particularly aggressive on welfare,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “They have the fiscal resources to do this. This would wipe out a great deal of the U.S.-China imbalances at a stroke.”

‘Superior System’

Zhou Xiaochuan, governor of China’s central bank, said in a March 26 speech that his government’s “prompt, decisive and effective policy measures” are already showing results, demonstrating China’s “superior system.”

He said China’s stimulus program is designed to boost domestic demand through interest rate cuts and spending in areas such as energy conservation and welfare, as well as infrastructure and industrial retooling.

Consumer spending represents more than two-thirds of the U.S. economy versus slightly more than 35 percent of China’s, down from a 45 percent share a decade ago. In contrast, China’s investment as a percentage of GDP has been rising since 2001 and now stands at 43 percent, higher than earlier historical peaks in Japan in the 1970s and South Korea in 1997, according to Ha.

Openness to Change

China may signal openness to change at tomorrow’s G-20 summit. Hu told the official Xinhua News Agency yesterday that the “international financial system should undergo necessary reforms in an all-around, balanced, gradual and effective manner to prevent a similar crisis in the future.”

That’s not enough, according to Roach, who said he told Chinese Premier Wen on March 23 that his government is still relying too much on exports and U.S. consumers to fuel growth.

“What I told him is that that is a big risk,” Roach said. “The U.S. consumer is down for the count for a number of years and so the old formula which has served China extremely well for a long time is not going to be that helpful.”

By Michael Forsythe and Kevin Hamlin

3 Responses

  1. G20 Summit in London;Prayers & Good Wishes, 2 April 2009; God Bless

    Prayers are amazing. This precious gift is always with us

    Let us all pray for the G20 Summit in London where the Leaders of the World accompanied along with Strategic Decision Makers meet

    That they form a coalition; a mutual understanding based upon a Vision for the Global Economy

    A Vision that is based upon Values Based Principles and grows from strength to strength to overcome the challenges being faced globally with Wisdom

    Seek the grace of God to fill the Universe with a Vision of Happiness & Wisdom always
    When the World prays together; the wishes seek to manifest

    When the World is Happy, we are all Happy. In one another’s Happiness is our true Happiness; Development; Prosperity & Progress

    Let us gratefully acknowledge; appreciate and express our sincere thanks to God for everything always;

    Protocol; Etiquette, Be Appreciative; Be Grateful; Be Meaningful; Be Purposeful; Be Respectful and Be Responsible always Please

    Express thanks to God time and again always, For the Health and Wellness,
    For the Wonderful Families; Friends, For the Inspiration & Wisdom, For Fulfilling our Needs, For Showing us the way, For the Courage, For the Natural Resources,
    For always being near us, For the lamp of peace; love; faith and hope that glows in all our hearts, For God’s graceful and loving presence, For God’s Blessings,
    For Guidance through the challenges, For the Trust in us, For knowing what is best for us always, For permitting the Love and Light of God to shine through our lives

    Prayer; May One and All be Appreciative; Grateful and Thankful

    Happiness

    May Happiness be showered on One and All; May One and All be Healthy;

    May One and All be Loved & Respected; May One and All have Well-being

    May One and All realize that their Happiness is linked to others Happiness;

    May One and All recognize that when the World is Happy, they are Happier;

    May One and All discover the true meaning of Life is that Life is Precious
    May One and All be Resourceful & Talented; May One and All Achieve and Excel;
    May One and All be Considerate; Creative; Meaningful; Purposeful and Responsible;
    May One and All Love Nature; The Environment & Humanity;

    May One and All Respect One Another; May One and All Inspire One Another;

    May One and All realize that they each have a very meaningful and special purpose in Life;

    May One and All believe that they are the precious Gems of this Universe;

    May One and All realize that Life is Beautiful; Precious, Meaningful and Purposeful;

    May One and All be a Symbol of God’s Loving Love and Light; Radiating Joy for others;

    May One and All be Blessed with Happiness, Prosperity; Progress& Wisdom always

    Thank you for your prayers for the World; they are immensely appreciated and reciprocated with utmost appreciation and gratitude

    Trust in God and Faith in Ourselves, May God Bless You and Your Families with a Vision of Happiness and Wisdom always

    When the World is Happy, We are all Happy; In one another’s Happiness is our true Prosperity, Development and Greatest Happiness

    May Universal Appreciation; Happiness; Consideration; Compassion; Respect; Peace; Love; Cooperation; Inspiration; Gratitude; Economic Development, Stability; Prosperity, Progress & Wisdom prevail always

    Love & Light;

    God Bless,

    Vashi

    ©2009 Vashi Ram Chandi

  2. […] Obama Meets Hu as Stimulus Plans May Heat Clashes […]

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