"The world's two biggest economies are so intertwined that if you catch a cold in China, it causes a big problem over here," said Kenneth Rosen, chair of the Fisher Center for Real Estate and Urban Economics at the University of California-Berkeley.

China has been going through a "tough transition" from basically a real estate and infrastructure investment boom to an economy based on consumption and personal services, he said.

The construction boom was "not happening much anymore, though it's still strong", Rosen explained. "So the linkages to the US economy come through clearly - exports and imports".

California, which sees China among its top three export markets, has reported a decrease in exports there this year.

According to a report by Beacon Economics in early December, a California-based economic research firm, shipments from California to China fell to $3.71 billion from August to October 2015 from $4.19 billion in the same year-ago period, an 11.4 percent drop.

California's exports to the Asia-Pacific region- led by computer and electronic products - dropped 2.1 percent during the same period, falling from $17.29 billion to $16.92 billion, a dip propelled largely by the drop in exports directly to China, according to the report's analysis of foreign trade data released by the US Commerce Department.

Not only exports, but also capital flows and people flows are affected, according to Rosen, who said that the Bay Area was in the middle of it.

"The Bay Area would be hurt if China's economy stumbled. It would come through the capital market, the debt market," he said.

There's been a big accumulation of corporate debt (either borrowed directly from financial institutions or the shadow banking system) in China to fund infrastructure and real estate, Rosen explained.

The second factor is that China was trying to stimulate the economy and get more investment by controlling the currency and lowering the exchange rate, he said.

"You can't do all those things, as we find in the US. Every time we try to do something, it goes bad," said Rosen, adding that the biggest issue China faced was how to let the air out of the currency, which was "too overvalued".

"So in order to keep their economy going, they (China) have to devalue the currency," he said. "They don't want to do it, as in August, which was a 4 percent instant change and shocked the system. But you want it to slowly devalue."

He also said that there were pressures that "some US people don't like that (devaluation of RMB), but it's the right thing to do. The currency is overvalued by about 15 percent," he said.

liazhu@chinadailyusa.com

(China Daily USA 01/04/2016 page1)