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Broker pins China's price hikes on US deficit

Updated: 2011-03-10 11:43

By Lan Lan (China Daily)

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NEW YORK - Price hikes to China's consumer goods are partly rooted in the rapid growth to the United States' supply of money, and the real concerns for the US economy are its competitiveness and trade deficits, said an American investment broker Wednesday.

"The reason Americans can live beyond their means is that Chinese are living beneath their means," said Peter Schiff, president of brokerage firm Euro Pacific Capital. His comments came at a seminar held by the Council on Foreign Relations in New York. Schiff has made many TV appearances in recent years in which he said he predicted the US' financial crisis.

To ease inflation, China pushed its yuan currency to a 17-year high this week. Consumer prices rose 4.9 percent in January, while the data for February prices is scheduled to be released on Friday.

The US is "printing so much money" and shipping the excessive dollar to China, so now the price is really rising for the Chinese, Schiff said at the seminar.

"I don't think what China is doing is manipulation. There was a manipulator, but not necessarily China because the biggest beneficiary at least in the short run of the policy is America," Schiff said. "America is manipulating our currency."

Schiff added that China is trying to maintain stability against the US dollar.

"We enjoy goods China made without paying for that because we just print the money," he said.

Schiff said the current US budget plan would be impossible without the Chinese lender and the country's CPI wouldn't be as low as it is without the Chinese currency peg.

In June, China ended its currency's two-year-long peg to the dollar. The government has said that it wants the yuan to be more flexible.

Schiff added that an appreciation of the yuan won't alter the US' trade deficits with China or expand American exports to China because of the limited number of "made-in-America" products.

"The real reason that we are importing so many products from China is that we cannot afford to make these stuffs by ourselves," he said.

The rules, regulations and taxes on US companies have made them uncompetitive, he said.

On the sidelines of the seminar, Eswar Prasad, professor of trade policy at Cornell University, told China Daily that China-related issues such as currency revaluation and trade imbalance seem important to the US, but the real concerns are its competitiveness and trade deficits.

"There are lots of debates about US fiscal deficits. That's really a serious problem, which constrained US enormously," he said.

He said the world's largest economy has to reduce government spending on fields such as education and infrastructure and raise taxes to meet the huge burden of public debts. That's what is going to have serious impacts for the US productivity, Prasad said.

If China and the US' trade relationship works out, it will bring lots of trade benefits, especially in terms of exports, he said.

China might be the only country that will allow US President Barack Obama's export plan, said Wei Shangjin, professor of Chinese business and economy at Columbia University. Obama's goal is to double US exports by the end of 2014. Commerce Minister Chen Deming has repeatedly said that China will import more from the US in the coming years to reduce trade imbalance.

Wei said the US' deficit against China is not a unique phenomenon. Besides China, US runs deficits with Canada, Mexico, the European Union and India.

"It's in China's interest to make its currency more flexible, but it won't do too much to reduce China's current-account surplus, and it won't do too much to reduce US current deficits," Wei said.

Chen Weihua contributed to this story.

China Daily

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