By Guo Shuqing

Chinese and US economies bring benefits to each other despite the challenges they face.

To begin with, the two economies have become the "double engines" driving the world economy.
 
It is widely believed that the United States is the biggest consumer country and China the largest investment maker.

As a matter of fact, China boasts super-big consumption, too. The country, for example, ranks first among the world's economies in turning out and consuming cereals, meats, cotton, aquatic products and fruits.

In addition, housing construction and sales in China are unrivalled by any other country in the world.

The mileage of newly constructed highways is extended significantly each year and more and more automobiles are owned by Chinese families.

Just as the United States' colossal consumer demand powers the growth of manufacturing sectors in many other countries, the Chinese economy's demand for raw materials, energy and investment is making its strength felt in Asia, Oceania, Europe, South America and Africa. Japan and European countries particularly benefit from this, because it allows them to export large quantities of machinery and equipment to China.

There are many active players on the global economic landscape, such as Japan, the EU, India and Brazil. But China and the United States are the two most eye-catching ones. This is because China has not only become one of the world's most important manufacturing centers but also developed into one of its major capital suppliers. The United States, meanwhile, is the largest net importer of industrial products and the biggest recipient of overseas capital.

There is more to it than that. China and the United States are the two economic entities enjoying the most promising prospects.

This is because China is the world's most populous country and has big market potential.

Worth special mention here is the fledgling service sector, which is virtually an untapped gold mine.

Among all developing countries, China's labor force is of higher quality against the background that the country has the largest labor contingent in the world, which is tantamount to the workforces of the United States, Japan and Europe combined.

The United States is the global centre of technological innovation and know-how, and of course the powerful locomotive of the world economy.

However, we should not forget that China's central and western regions are still trailing far behind the eastern and southern coastal areas economically. It would take 20 years for these areas to catch up, some experts predict.

At the same time, consumption demand remains weak, which is structural by nature. This actually mirrors the insufficient supply of services, particularly in the public welfare sector.

Very close bilateral economic ties are expected to be forged between China and the United States, as dictated by the two economies' comparative advantages.

Theoretically, the United States could turn away from China and import consumer goods from other nations. If it did, however, neither the United States nor China would be able to reap the optimum gains. Similarly, China could channel capital into European countries instead of the United States, but this would throw the European monetary market off balance and trigger inflation. All this would do no good to the world economy ultimately.

The Chinese and US economies are the two most open ones among their world peers, thanks to particular historical and cultural factors. In terms of market access and sector access, China is even more open than the United States.

Moreover, China and the United States are representative of the two most energetic cultures and languages.

The influence of culture and language on economic progress is by no means less than that of science and technology, in this author's opinion.

The faster a nation's economy grows, the more dependent on culture it becomes.

Also, the part played by language should not be ignored. Exchanges could never be conducted, nor transactions ever struck, without language. And the Chinese and English languages are the most extensively used in the world.

However, along with the pleasant aspects, the Chinese and US economies face challenges and problems as well.

First and foremost, we have trade disputes.

The US side holds that the under-valued renminbi exchange rate causes a trade imbalance that favors China at the United States' expense.

Besides, the US side claims, intellectual property rights encroachment and piracy pose a stumbling block to the healthy development of China-US economic relations.

From the Chinese point of view, however, the favorable trade balance China enjoys is largely attributed to the actions in China of overseas corporate giants including US players, many of whose products are shipped to the United States.

The Chinese side believes the exchange rate is by no means omnipotent in settling trade problems, though it can indeed play a role.

Thirty years ago, for example, Japan and Germany (then West Germany) appreciated their currencies 200 percent in an attempt to redress their trade imbalance with the United States. But the two countries today still enjoy favorable balances in their trade with the United States.

Currently, much pressure is being exercised for revaluation of the renminbi. But this is not the effective way to have the trade problems settled.

As mentioned previously, China's foreign trade is, to a certain extent, a sort of re-export model, exporting products turned out by foreign corporations' China operations. Appreciation of the renminbi will enable export-orientated Chinese enterprises to buy more raw materials, cancelling out the negative effects on the exported goods, which are rendered more expensive by the renminbi revaluation and, therefore, less competitive on the world market.

So, the foreign exchange leverage cannot do much about altering the trade imbalance between China and the United States.

As a matter of fact, development of bilateral trade brings benefits to both China and the United States in the long run. China will not profit at the United States' expense, while the latter will not suffer mammoth losses.

There are other problems, such as disparity in terms of investment.

US firms have so far invested a total of US$60 billion in China while Chinese investment in the United States remains insignificant, owing to different policies adopted by the two countries on market access and foreign direct investment.

In addition, some Americans are oversensitive to Chinese companies' annexation of US firms and to Chinese banks' buying government bonds in the United States. Also, there is a tendency to politicize economic matters, especially on the part of the United States, though the Chinese tended to do so a few decades ago in the command-economy era.

The way out lies in both parties' facing these problems squarely and finding out the most effective solution that benefits both, with reality as the departure point.

The author is chairman of the China Construction Bank.

(China Daily August 25, 2006)