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Obama and the China Syndrome
President-elect Barack Obama already has considerable reason to worry about America's trade relationship with China. In November, China ran up a record-breaking $40 billion USD monthly trade surplus, and the country's top economic planning agency reported that this year's annual trade surplus of USD 280 billion is set to surpass last year's record. These staggering figures, however, mask the fact that China's trade numbers have fallen steeply, raising substantial concern about the Chinese economy's viability. On December 13th, Central bank governor Zhou Xiaochuan and other top economists told a forum that China may well be slipping into deflation. China, which relies on exports for as much as 40% of gross domestic product (GDP), must preserve its export regime, either through subsidizing industries or devaluing its currency, if it is to maintain the 8% annual GDP growth its leaders believe is necessary to preserve social stability. But if it either protects its export industries or devalues its currency, the world risks a trade war. Some export companies have already received value-added tax breaks and others may be expected.