Is China becoming the new Japan?

• Author: Hollein, Marie
• Position: President's page

The current battle over the Chinese yuan has taken on all the appearances of a heavyweight match: Two formidable opponents moving toward the center of the ring, each sizing up the other for any advantage.

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The Chinese may well be setting the value of its currency artificially low to ensure its exports maintain a more competitive price on the global market. The United States is alarmed by the staggering trade deficit it continues to experience with the Chinese. By the end of June, that divide stood at 17 percent, or $26.2 billion.

As a result, that's led to renewed calls in some quarters for a tough congressional response to pressure Beijing to rework its currency policy. In the absence of aggressive action by the Chinese toward posting a more flexible exchange rate, tensions over trade and currency valuation could continue to mount. Trade groups have been drawn inexorably into the debate, though there appears to be some disagreement over whether potentially punitive legislation is the most appropriate recourse in closing the trade gap.

One thing is clear: The yuan-dollar debate probably isn't going to end anytime soon in Washington, particularly as we get deeper into the election season. It's become more than simply a distraction. Just as clear, to me, is that this is an issue that cries out for reasoned compromise. And not just because it is vital to the American economy.

With China's somewhat overheated economy beginning to slow measurably, the country might be in danger of emulating the rise and near-fall of the Japanese economy spanning nearly three decades.

It's ironic, really. Now that China has surpassed Japan as the second biggest national economy on the planet, it faces many of the complex challenges the Japanese encountered in the mid-1990s, after a decade of spectacular, unprecedented growth and expanded international influence.

To a great extent, China has replicated the export-driven economic model developed so brilliantly by its ages-long Asian rival.

But it isn't only a comparison with the Japanese economy that applies. Our own U.S. technology and housing sectors have gone through similarly impressive growth spurts over the past decade or two, only to stumble badly because they grew too fast and weren't sustainable. Ultimately, nothing lasts forever.

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