China must act to stop economy 'overheating' - US

The United States has warned China it must take steps to ease a possible “overheating” of its economy.

Speaking on the eve of the US-China Strategic Economic Dialogue meetings in Beijing, the United States Treasury Secretary, Henry M Paulson, highlighted concerns raised by Chinese leaders on the country’s macroeconomic stability.

Paulson wants the Chinese government to speed up currency appreciation, noting mounting inflation and growing asset bubbles as the major threat to the burgeoning economy.

“A more flexible exchange rate policy is especially important to China now, given these risks,” Paulson says in his opening statement.

“The pace of RMB (Chinese currency) appreciation remains one of the key levers to deal with China's internal and external imbalances.”

November statistics showed the Chinese consumer price index climbed 6.9% from a year earlier, higher than the 6.4% analyst prediction.

But Neptune Asia Pacific fund manager Shelley Kuhn says the rise is being driven by food inflation, an area interest rate adjustments could not correct.

“The US has called for a revaluing of the Chinese currency for some time and the reasons are slightly questionable,” she says. “The opinion seems to be more politically motivated, rather than economic.”

“The Chinese economy is undervalued, and it is not good to be undervalued for a long period of time because it can create an unbalanced economy.

“But the Chinese authorities feel job creation and remaining competitive in the export market is more important at the moment.”

Paulson, the former Goldman Sachs chairman and CEO, also called on the communist country to “further open its financial sector”, to provide the capital access needed for continued inclusive economic growth.

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