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U.S. presses China on finance reform

Beijing, CHINA: A US and a Chinese flag wave outside a commercial building in Beijing, 09 July 2007. US Secretary of State Condoleezza Rice 06 July 2007 accused China of flouting the rules of global trade in its headlong economic expansion as the US administration 'has not been hesitant' to deploy trade tools against China, including a complaint lodged with the World Trade Organization over copyright piracy.

JEREMY HOBSON: China said today its exports hit a record level last month. And its trade surplus is now $11.4 billion.

For more on this, let's bring in Juli Niemann, analyst with Smith Moore and Company. She's with us live every Tuesday from St. Louis. Good morning Juli.

JULI NIEMANN: Good morning Jeremy.

HOBSON: So, inflation is high in China. That means the costs to make those things that it produces goes up -- so why would exports be rising and not falling?

NIEMANN: Well, in spite of everything, even with wages and commodities going up in China, they are still the lowest cost producer. So they ended up with exports up 30 percent in spite of those higher prices. Imports up only 22 percent. Now the U.S. wants China to raise the value of the yuan too because a cheaper yuan enables them to underbid and under price all of their trading partners. And we'll also mumble about human rights because they're concerned over the Arab spring could spread to their shores too. But China has very legitimate concerns. We need to get our fiscal mess under control. We pay them in dollars. And they buy tons of treasuries. And both are going down in value due to our inability to get our debt and spending under control. And they view this as the big rip off, not the pay off. So, we have real testing conditions going on with China at the point. And we also appear to be in a shift with Pakistan. China has always been a long supporter of Pakistan because they both hate India. And we're clouding our relations with Pakistan so we've got two things that are clouding problems with China right now.

HOBSON: And these big meetings are going on in Washington with high level Chinese officials. Juli, quickly, do you expect anything big to come out of these meetings?

NIEMANN: Mostly they're going to say that we have strong cooperation and growing cooperation, but again the key thing is going to be can we make any headway with this. They're not going to give until they see us have some significant movement on the debt.

HOBSON: Juli Niemann, analyst with Smith Moore and Company, thanks as always.

NIEMANN: You bet.

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