China experienced record inflation last month. And food prices keep rising. Meanwhile in the US recession looms on the horizon. Experts say that in the third round of their strategic talks both countries want concrete results to allay concerns in their respective populations.

Beijing (AsiaNews/Agencies) – In order to solve their respective economic problems, Washington and Beijing must promote free trade and “work together to stem the tide of protectionist sentiment in our nations,” US Secretary of Commerce Carlos Gutierrez said on the eve of the third economic dialogue between the two countries that starts tomorrow in the Chinese capital. For experts both governments are faced with very serious domestic problems. The United States is braced for a possible recession next year whilst mainland China’s annual consumer price inflation sped to an 11-year high last month at 6.9 per cent.

US Secretary of Health and Human Services Michael Leavitt, who signed two agreements on improving food and drug import safety today, said that the agreements, which would take effect immediately, should be seen as part of a wider effort by the US to respond to the safety challenges presented by global trade.

But for the United States the revaluation of the yuan and the reduction in its trade deficit with China, which is expected to exceed last year's record US$ 232.5 billion, remain a priority as US Treasury Secretary Henry Paulson reiterated last week.

By contrast, Chinese Vice-Minister of Commerce Chen Deming said yesterday that a narrow focus on the value of the yuan risked "hindering the normal development" of trade connections between the two countries.

Given the limited results in the first two economic summits, Washington wants to highlight the importance of the dialogue between the world’s two main economies and is concerned by the rise of protectionist sentiments in the US Congress where more than ten bills have been introduced against Chinese products.

In Beijing these meetings are also a test for new leaders who emerged from the 17th Communist Party Congress like Trade Minister Bo Xilai and Politburo member Li Keqiang (who should replace Deputy Premier Huang Ju, who died in June).

“Both sides do not want to make current tensions worse, so they will concentrate on secondary topics such as product safety, and bypass the major problems of the undervalued currency and barriers to market access,” said Shi Yinhong, director of the Centre for American Studies at Renmin University in Beijing.

Co-operation in the energy field, the environment, food and product safety, intellectual property protection and access to China’s financial services and telecommunications by US companies are among these “secondary” issues.

“Compared with the previous talks, the upcoming ones will be tough as both economies are facing challenges and uncertainties ahead,” said Lu Xiaobo, director of Columbia University's Institute of Oriental Studies.

Recession haunts the United States whilst China is threatened by high inflation which could trigger social unrest or reduce its economy’s competitiveness.

Beijing has so far failed to rein in inflation, especially food prices which represent a third of the consumer price index basket. And the numbers point to pressures seeping beyond food items, where annual price rises were still highest, up 18.2 per cent last month, to the broader economy, from utilities to travel costs.

The cost of raw materials, fuel and power was up 6.3 per cent. The cost of crude oil surged 22.6 per cent. And the non-food consumer price index climbed 1.4 per cent year on year last month, the sharpest rise this year.

On Saturday, the central bank raised the proportion of deposits that banks must hold in reserve as part of its drive to reduce monetary liquidity. But similar steps were taken before this year with little effect on inflation.

More and more experts believe that revaluation of the yuan could contain inflation by reducing exports (hence liquidity) and pushing up imports (reducing the cost of imports). But this could cause unemployment and social instability.

Another possibility is higher salaries but this would cut into manufacturers’ competitiveness against other countries. In fact several foreign companies have already started moving from China to Indonesia and Vietnam. (PB)

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