US warns China of growth 'hangover'

Chinese workers stitch various clothes for export in 2010
© AFP/File Str

WASHINGTON (AFP) – China’s overdependence on cheap exports to fuel its break-neck economic growth has led to a boom that will “leave a financial hangover for years”, a senior US government official warned Tuesday.

“China’s excessive dependence on growth driven by exports to advanced economies and investment will need to change,” Lael Brainard, the Treasury Department’s under secretary for international affairs, told Congress.

“During the 2008-2009 global crisis, China was able to sustain growth through a massive credit-fueled investment boom. This will leave a financial hangover for years,” she said.

Brainard warned that China risked “repeating the experience of other fast-growing Asian economies” who saw their growth fall soon after investment rates reached their peak.

“With investment reaching an all-time high of almost 48 percent of GDP, however, China’s peak is higher than other Asian economies,” she warned.

As President Barack Obama struggles to convince Congress his administration’s policies toward China are resulting in substantive reforms, Brainard said it was in Beijing’s interest to change.

Describing “daunting challenges in coming years,” Brainard, said “China needs to take these actions to sustain its own growth, as well as to address the concerns of its trade partners.”

“On these issues, we have actively pressed China to accelerate the pace of reform in order to achieve more balanced growth and create fairer competition, and there has been some progress, but there are strong interests within China that favor a go-slow approach.”

Democrats and Republicans alike have accused China of flouting World Trade Organization rules and keeping the value of the yuan weak in order to make its exports more competitively priced.

Many have backed a plan that would introduce sanctions against China for its failure to allow the yuan to appreciate.

Democrat Sander Levin said China’s policies were “imbalanced unfair and unsustainable,” the American people, he said, “want Congress to take action.”