Obama's job plan 'will not affect China'

08:24, January 29, 2010      

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A series of incentives unveiled by US President Barack Obama to create jobs for Americans will not have a major effect on China's trade relationship with the US, economists said yesterday.

Obama devoted most of his 65-minute State of the Union address on Wednesday to job-creation proposals, such as eliminating capital gains taxes on small business investment and extending tax breaks for businesses to invest in new plants and equipment.

"There will be some trade frictions between the two countries this year as the US government strives to create or retain jobs. But trade frictions, including exerting pressure on the renminbi's appreciation, certainly cannot help Americans have more jobs," said Li Xiaogang, a researcher at the Shanghai Academy of Social Sciences.

Li said China's competitiveness still lies in manufacturing with an obvious low-labor-cost advantage, and that is the natural result of international division of labor that can hardly be rebalanced immediately.

"China's exports, and inward foreign direct investment (FDI) will see stable growth this year thanks to the economies recovering in both countries," he said.

The US economy has continued to strengthen with GDP rising at 2.2 percent in the third quarter after four consecutive quarters of contraction, a signal that the worst recession since the Great Depression has ended.

Dong Xian'an, chief economist at Industrial Securities, said he believes the US economy will see a year-on-year growth of over 4 percent this year.

"The US recovery will certainly help increase demand for Chinese goods, and China's exports may enjoy a 20 percent rise this year," the economist said.

Chinese exports rose 17.7 percent year-on-year last month, the first growth in 14 months. FDI to China more than doubled in December, skyrocketing 103 percent from a year earlier to $12.14 billion, compared to the 32 percent year-on-year growth in November.

"FDI will continue to grow this year, albeit slowly, and flow to different sectors," Li said.

Of the total FDI in China last year, 52 percent went to the manufacturing sector and 42 percent to the service sector. Li said the service sector would attract more investors as the quality and effectiveness of foreign investment is now more important than its scale.

"Obama's speech is more political than real practical economic proposals," Dong said.

"I want to see how the US government will put a cap on Wall Street salaries and bonuses and how much 'redemption fee' the government is going to charge Wall Street banks," he said.

Source:China Daily
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