China's economy running a little too hot
While U.S. Treasury Secretary Henry Paulson is in Beijing for economic talks, China reported an inflation rate of 6.9% -- its highest in 11 years. Analysts say the country has too much cash on hand. Scott Tong reports.
Shoppers in Beijing. (STR/AFP/Getty Images)
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KAI RYSSDAL: It was a rough day on Wall Street, but the New York Stock Exchange is always looking for new business. Today the Big Board opened an office in Beijing to tap into the booming Chinese equity market. Treasury Secretary Henry Paulson was on hand for the ceremony. He's in China for the next round of economic talks. Meanwhile, today brought another sign of potential overheating in that economy.
Marketplace's Scott Tong has more from Shanghai.
SCOTT TONG: Six point nine percent -- that's China's inflation rate, the highest in 11 years. Blame oil prices, blame a shortage of pork and blame cash. Economist Stephen Green at Standard Chartered Bank says too much cash is sloshing around in China, pushing up prices.
STEPHEN GREEN: The fundamental issue is this economy's too liquid. That needs to change, and one of the only ways that can change is on the exchange rate.
I.e. appreciate the RMB more quickly against the dollar. That's Hank Paulson's argument: that this helps China, and it makes U.S. exporters more competitive. The economics are debatable, but politically, independent economist Andy Xie doubts Chinese leaders will risk a big policy change. He says it's a fragile economy running awfully fast now, so slow is the word on currency reform.
ANDY XIE: In Japan it took ten years. I doubt it will take less in China, so we're lucky if China has a convertible currency by 2015.
China is moving on other fronts. Today the two sides signed a product safety deal on Chinese food and drug exports. And Beijing may grant more market access to western investment banks and stock funds. Still forecaster William Hess, of Global Insight, doubts China will give away the store to a lame-duck U.S. administration.
WILLIAM HESS: Given the uncertainty in the political climate in Washington, to give something to Paulson now may not carry the same weight as it would later.
Paulson will take something home. China's head of product quality gave Paulson a Christmas present -- a perfectly safe, made-in-China toy dog.
In Shanghai, I'm Scott Tong for Marketplace.
