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Two important economies that show contrasting pictures
Fazle Rashid
1/16/2006
ECONOMIES of two countries, rightly considered the lifeline of the global economy, present sharply contrasting pictures. The US economy remains stable and stagnant with many pitfalls and the Chinese economy is soaring high without any hindrance much to the discomfort of many affluent nations.
The US budget deficit will run into $400 billion in 2006. It showed little improvement in 2005. Since President Bush's took office in 2001 the federal budget slided down from a cozy surplus of $100 billion to a deficit of $412 billion. The deficit was slashed to $319 billion in 2004..
The Chinese economy, on the other hand, grew by 10 per cent annually during past several years, making it the third largest economy in the world, after those of the US and Germany.
China's trade surplus with the rest of the world trippled in 2005 to a record $102 billion. This will again force the trading partners of China, notably European Union (EU) countries and the US, to ask for upward revision of Yuan, the Chinese currency. It is said that China has edged past many countries because its exports have grown at a phenomenal rate largely due to cheap labour and low value of Yuan.
China is also blamed for not allowing its labour force to form unions.
The Chinese exports totalled $762 billion, up 28 per cent from 2004 while imports also registered a rise by 18 per cent to $660 billion.
A decade ago Chinese exports stood at $289 billion. But now the bulk of the goods like toys, clothing, furniture, electronic goods and capital goods in the global markets carry the label of 'made in China'. China is now an important player in the global economic scene, it influences prices and global interest rate.
China has a foreign currency reserves of about $794 billion just behind Japan which has $828 billion. Last year China made a slight adjustment of the Yuan. The Yuan was allowed to appreciate by a mere two per cent. China has reached separate textile agreements with the US and the EU in the wake of Chinese textiles flooding those markets.
Another sign of the robust health of the Chinese economy is the huge US investments. The US giants like Boeing, GM and Ford are planning to build plants in China.
The news that the deficit in US federal budget will widen has come as a shock to President Bush and Republican lawmakers who were pushing to bring the deficit by $90 billion in the next five years The White House has attributed the rising deficit to a recession in 2001, collapse of the stock market, huge new spending on domestic security and rising cost of wars in Afghanistan and Iraq.
The experts outside the government say that the government spending under President Bush has skyrocketed while his tax cuts which have helped the wealthiest segments of the Americans have resulted in revenue loss for the government.
The government spending in America has climbed to 20 per cent in the last three years from 18.5 per cent in 2001. The revenue earnings plunged to 16.3 per cent from 19.8 per cent in 2001.
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