China economy growing again while US limps

WASHINGTON (AP) — It’s a tale of two economies, China and the United States.

The United States, the world’s largest economy, remains mired in recession as do most of its fellow top industrial powers. China, meanwhile, has returned to growth.

Economic and strategic cooperation between the two world economic superpowers tops the agenda as top officials from both countries hold a two-day meeting in Washington, beginning Monday.

China, poised to pass Japan as the world’s second-largest economy perhaps by late this year, recently announced its gross domestic product grew by more than 7.1 percent in the first half of this year.

That puts it alone among the top 10 world powers whose economy has expanded in recent months, making it the first major country to emerge from the worst global slump since the 1930s. Many analysts suggest that China could help to lead the rest of the world out of the doldrums.

For China’s part, it hopes the US and other Western countries will also recover and revive their now-depressed demand for Chinese goods, further buoying the Chinese economy. US officials, however, suggest that, with recession-shocked American consumers spending less and saving more, those glory days for Chinese exporters will not return anytime soon.

China stands out as a case study in how government economic-stimulus can work.

In the United States, there are fierce debates over whether President Barack Obama’s $787-billion stimulus, passed by Congress in February, is having much impact. Designed to help create jobs, US unemployment continues to rise at a steep pace and the economy is still shrinking.

By contrast, Beijing’s $586-billion stimulus effort, put in place last November, has been hugely successful by nearly all accounts.

It freed up massive public-works spending and made bank loans more available, spurring a huge increase in Chinese construction and purchases of cars, homes and other goods.

If anything, some economists suggest the Chinese stimulus may actually be working too well, threatening to overheat the Chinese economy. That raises concerns that the flood of easy money will cause inflation and set the stage for the same kind of housing-credit “bubble” that triggered the US financial meltdown.

Why did China’s stimulus work when the US version was slow to kick in?

For one thing, China had many of the programs, including public works projects, in the planning stages for two or three years so they got a head start once hit last year by the global downturn. China also didn’t have to go through the tortuous gyrations that the Federal Reserve and Treasury did to inject money into US banks in hopes of getting them to resume lending.

“Credit was flowing not because Chinese bankers were inherently confident about their economy. Credit was flowing because the Communist Party was telling the banks to lend,” said Charles Freeman, former assistant US trade representative for China affairs and now with the Center for Strategic and International Studies.

While exports may not be as much a driver of the Chinese economy as in the past, China is well situated to benefit in any upturn, particularly because of its reputation for manufacturing inexpensive products, said Freeman. “Cheap goods are relatively in demand in times of economic trouble, and so China is the first and last resort for cheap goods,” he said.

In addition to better economic cooperation, Beijing is also Washington’s most important partner in efforts to discourage or contain North Korea’s nuclear ambitions.

Still, the US- Chinese relationship isn’t all rosy.

There remain security concerns as China bulks up as a military superpower as well as an economic one.

And there is still much trade friction between the two countries. Many in Congress and in organized labor still view China warily as a fierce competitor for US manufacturing jobs.

“New opportunities in President Obama’s new green economy will go to big players like GM and to businesses in China, where the government understands global commerce is played by rules of prison football,” said Peter Morici, a business economist at the University of Maryland and former chief economist at the US International Trade Commission.