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Snow advises to save less, spend more
By Neil King Jr., James T. Areddy (The Wall Street Journal)
Updated: 2005-10-14 11:45
Treasury department officials have a new strategy for lessening America's
trade frictions with China: Get Chinese consumers to save less and spend more.
US Treasury
Secretary John Snow (2nd right) chats with a vendor at a market
in Mulan town in southwest China's Sichuan Province October 13, 2005.
[newsphoto] | Beijing has chased the same elusive
goal itself with limited success. But Treasury Secretary John Snow, who strolled
through a village market in central China yesterday, believes Beijing needs to
revamp its tax code, make consumer credit easier to get, and rebuild the social
safety net so people can dip into their savings and head to stores.
After viewing slabs of fatty pork and nibbling on a fried pastry, Mr. Snow
extolled the virtues of the average Chinese buying "more stuff," be it
Chinese-made sofas or new ovens. "We see the growth of consumerism ... as going
directly to what is most on our mind, which is the global imbalance" in trade,
he said.
Mr. Snow's new consumerist line has another attraction. It gives him a softer
alternative to twisting China's arm over its still-rigid currency system, now
the main sore spot in the two countries' trade relationship. China is set this
year to rack up a trade surplus with the US of more than $200 billion, up from
$162 billion last year. Just yesterday, the Commerce Department announced that
the gap in trade with China widened 4.65% to $18.47 billion in August from July,
while the overall US trade deficit grew 1.8% to $59.03 billion.
The US wants China to spend more and save a little less not simply to get the
Chinese to buy more American imports -- though that would be applauded. The idea
is to get China's domestic market moving faster so its big companies grow by
selling to people at home, not only by shipping more goods to the US, which adds
to America's trade deficit and generates political pressure for protectionist
measures that the Bush administration doesn't want.
Mr. Snow's new tack has won supporters in Beijing, but may earn him little
breathing room at home. Measures to liberate China's consumers could take years
to put in place, while critics in Congress and within US industry want immediate
action. Hence their focus on China's currency, the yuan, which they argue is
kept at an unfairly cheap price to spur exports.
"The Treasury line on domestic demand growth in China is fine so long as it
doesn't become a substitute for pushing for a further appreciation" of the yuan,
says Morris Goldstein, an economist at the Institute for International Economics
in Washington.
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