The upside? China's Purchasing Managers Index for manufacturing rose to 56.6 in December from 55.2 in November, the Xinhua news agency reported. It was the index's 10th consecutive month above 50 -- the demarcation point between expansion and contraction. Most economists agree that China is now an engine not only for Asian hemisphere GDP growth, but global economic growth, as well, and an expanding manufacturing sector in the mainland's economy is a good sign for the recovery.
The downside? As New York Times (NYT) Columnist Paul Krugman and others have noted, unless China ends its fixed-rate currency system -- a system that's tantamount to mercantilism -- China's manufacturing sector, among others, will continue to amass large surpluses, much of it stemming from low prices created by the artificially-weak yuan currency, and a key global imbalance will worsen.
Economic Analysis: The world wants and needs a growing Chinese economy. However, if China does not let the yuan float, or at least let it appreciate from its current, roughly 6.8 yuan to the U.S. dollar peg, international trade deficits -- including the U.S. trade deficit with China -- will remain artificially high. Further, millions of jobs will continue to be unnaturally transferred to China, due to the monetary 'subsidy' provided its by cheap, fixed currency, which artificially decreases the cost of its goods produced. Economist Krugman estimates that barring changes, the fixed yuan will cost the U.S. 1.4 million more jobs over the next couple of years -- hence the need for U.S. policy makers to encourage China to let the yuan appreciate, if not float freely.