Expectations are low for the Sino-American Strategic and Economic Dialogue under way in Beijing. China has telegraphed its reluctance to move on the renminbi while public finances in Europe, its biggest export market, are in a mess. Snarling between the Koreas, meanwhile, seems a more urgent global skirmish than any between the G2. Even so, observers might have hoped for a little more intellectual honesty from Tim Geithner. There is little evidence to support the US Treasury secretary's claim that “it looks as if there has been a durable shift towards domestic consumption in China”.
Mr Geithner should not need reminding that the only durable shift in the past two decades has been in the other direction: household consumption as a share of gross domestic product fell from 45 per cent in 1990 to 36 per cent in 2008 (the most recent available). True, in the first quarter of 2010 real Chinese retail sales growth – the only broad indicator of consumption released by the national bureau of statistics – outpaced GDP growth by 3.5 percentage points. That kind of outperformance, if sustained, could restore China's consumption/GDP ratio to a still-low 40 per cent in a few years.
The composition of that first-quarter growth, however, suggests the heavy hand of temporary state incentives – autos up 40 per cent; household appliances up 30 per cent. Much has been made, too, of the 79 per cent fall in China's trade surplus in the first four months, year on year. But customs data showed that April's surge in imports was driven by higher soyabean prices and the stockpiling of more costly iron ore – neither necessarily a symptom of overpowering domestic demand. The man in the street, in short, needs all the encouragement he can get – including a stronger currency. Mr Geithner should not let revaluation momentum stall.