By all accounts, President Obama's visit to China last week was pretty much a failure on all the major issues, which include China's contributions to climate change, nuclear weapons, and various aspects of the world economy. I will concentrate my discussion on two of the most important and closely related economic issues: the valuation of the Chinese currency, the renminbi, and the huge assets accumulated by China that are mainly held in the form of US Treasury bills and other US government assets.

The Chinese central bank held the value of the renminbi fixed relative to the US dollar at a little over 8 renminbi per dollar during the 1990s, and until 2005. It then allowed the renminbi to appreciate gradually to less than 7 per dollar until 2008, when it again fixed the rate of exchange between these currencies at about 6.9 renminbi per dollar. This exchange rate is considerably above a free market rate that would be determined in a regime of flexible exchange rates. So there is no doubt that China is intentionally holding the value of its currency below the rate that would equate supply and demand.

The dollar has depreciated substantially relative to other currencies since May of 2009. Since the renminbi is tied again to the dollar, the renminbi has depreciated by the same amounts, including 16% against the euro, 34 % against the Australian dollar, 25% against the Korean won, and 10 % against the Japanese yen. This substantially depreciation of the Chinese currency has made many other countries angry at China's policy of locking it to the US dollar.

President Obama apparently complained to Hu Jintao, President of the People's Republic of China, about the low value of the renminbi, and urged China to allow it to appreciate substantially. The US and other countries worry that the undervaluation of the Chinese currencyi increases the demand for Chinese exports, and reduces China's demand for imports from countries like the US because China keeps the dollar and the currencies of other countries artificially expensive relative to their currency. America and other countries hope that greater demand from China for their exports resulting from a higher value of the renminbi will help these countries resume sizable economic growth as they recover from this severe recession. They especially want to help reduce the high levels of unemployment found in many of these nations.

Indeed, in good part due to the low value of its currency, China has run substantial surpluses on its current trade account as it imports fewer goods and services than it exports. The result is that China has accumulated enormous reserves of assets in foreign currencies, especially in the form of US government assets denominated in dollars. As of September of this year, China had the incredible sum of over 2 trillion dollars in foreign currency reserves, such as US Treasury bills. This is by far the highest reserve in the world, and it amounts to the enormous ratio of more than one quarter of China's GDP of about $8 trillion (purchasing power parity adjusted).

I am dubious about the wisdom of both America's complaints about China's currency policy and of China's responses. On the whole, I believe that most Americans benefit rather than are hurt by China's long standing policy of keeping the renminbi at an artificially low exchange value. For that policy makes the various goods imported from China, such as clothing, furniture, and small electronic devices, much cheaper than they would be if China allowed its currency to appreciate substantially in value. The main beneficiaries of this policy are the poor and lower middle class Americans and those elsewhere who buy Chinese made goods at remarkably cheap prices in stores like Wal-Mart's that cater to families who are cost conscious.

To be sure, US companies that would like to export more to China are hurt by the maintenance of the Chinese currency at an artificially low value relative to the dollar. As a result, employment by these companies is lower than it would be, so that this may contribute a little to the high rate of US unemployment. But I believe the benefits to American consumers far outweigh any loses in jobs, particularly as the US economy continues its recovery, and unemployment rates come back to more normal levels.

Since the opposite effects hold for China, I cannot justify their policies from the viewpoint of their interests. Their consumers and importers are hurt because the cost of foreign goods to them is kept artificially high. Their exporters gain, but as in the US, that gain is likely to be considerably smaller than the negative effects on the wellbeing of the average Chinese family.

I reach similar conclusions about China's accumulation of their excessive reserves. The US has little to complain if China wants to hold such high levels of low interest-bearing US government assets in exchange for selling goods cheaply to the US and other countries. China's willingness to save so much reduces the need for Americans and others to save more, but is not differences in savings rates also part of the international specialization that global markets encourage? To be sure, why China is willing to do this is difficult to understand since they are giving away goods made with hard work and capital for paper assets that carry little returns.

One common answer is that China hopes to increase its influence over economic and geo-political policies by holding so many foreign assets. Yet it seems to me just the opposite is true, that China's huge levels of foreign assets puts China more at the mercy of US and other policies than visa versa. China can threaten to sell large quantities of its US Treasury bills and other US assets, but what will they buy instead? Presumably, they would buy EU or Japanese government bills and bonds. That will put a little upward pressure on interest rates on US governments, but to a considerable extent, the main effect in our integrated world capital market is that sellers to China of euro and yen denominated assets would then hold the US Treasuries sold by China.

On the other hand, the US can threaten to inflate away some of the real value of its dollar denominated assets-not an empty threat because of the large US government fiscal deficits, and the sizable growth in US bank excess reserves. Inflation would lower the exchange value of the dollar, and also of the renminbi, as long as China keeps it tied to the dollar. That would further increase the current account surpluses of China, and thereby induce China to hold more US and other foreign assets, not a very attractive scenario to China.

So my conclusion is that the US in its own interest should not be urging China to appreciate its currency- countries like India have a much greater potential gain from such an appreciation. On the other hand, I see very little sense at this stage of China's development in maintaining a very low value of its currency, and accumulating large quantities of reserves. Paradoxically, President Obama and President Jintao should each have been arguing the others positions on these economic issues.

BEIJING—Changan Automobile Group Co. on said Tuesday it will take over several automobile companies now owned by state-owned conglomerate Aviation Industry Corp. of China, in a restructuring that could indicate that the consolidation of China's fragmented automobile sector is gaining momentum.

AVIC will get a 23% stake in Changan Automobile in exchange for Harbin HF Automobile Industry Group Co., Jiangxi Changhe Auto Co. and Harbin Dongan Auto Engine Co., as well as Chinese joint ventures with Suzuki Motor Corp. and Mitsubishi Motors Corp., Changan Automobile said in a statement.

Changan Automobile's parent, whose name translates as China Weaponry Equipment Group, will own the remaining 77%, it said.

Changan Automobile is already the parent company of Shenzhen-listed Chongqing Changan Automobile Co.

"This is a very reasonable merger," said Yale Zhang, an analyst at automobile-research firm CSM Worldwide. He said the restructuring helps consolidate China's mini-commercial-vehicle segment, in which Chongqing Changan holds the No. 2 spot by sales volume, followed by Changhe Auto and Harbin HF. The segment is led by SAIC-GM-Wuling Automobile Co., a joint venture between General Motors Co., SAIC Motor Corp. and Wuling Automobile Co.

The restructuring could mean consolidation in China's automobile industry, which the government has been trying to promote, is finally gaining some steam.

China currently has more than 80 automobile makers competing for thin slices of the market.

In May, Guangzhou Automobile Group Co. acquired a 29% stake in Hunan Changfeng Motors Co. to become the sport-utility-vehicle maker's biggest shareholder.

A host of other potential transactions are also under discussion in the industry.

The moves come after the central government said earlier this year it planned to encourage consolidation of its automobilemobile companies into a "big four" and "small four," to increase the local industry's competitiveness against established foreign compeition.

As part of the AVIC deal, Changan Automobile will take over Suzuki's automobile-making joint venture in China with Changhe, Jiangxi Changhe Suzuki Automobile Co., and an engine joint venture between Mitsubishi and Dongan.

The restructured group aims to sell more than 2.6 million vehicles by 2012.

It targets sales of five million vehicles by 2020 and to sell own-brand, high-end vehicles, the statement said.

Japan has had a very slow rate of growth in its GDP since 1991, averaging just a little over 1 percent. Given this slow growth, and the government's continued failed efforts to prop up their economy by running large fiscal deficits, the ratio of government debt to its GDP has risen from only about 50% in 1995 to by far the highest ratio in the developed world, at about 170% in 2008. Estimates indicate that it could rise to over 200% by next year as the budget continues to spill red ink, and may grow even much further during the next decade. Such a large debt ratio has been manageable so far only because interest rates have been very low, at about a little over 1%. But these rates have recently been rising as concern is growing about the fiscal solvency of the Japanese government.