China shouldn't be forced to let its currency appreciate as a way to rebalance the world economy, World Bank Chief Economist Justin Yifu Lin said, staking out a strong position that runs contrary to calls from the International Monetary Fund and policy makers in the U.S., Europe and Asia.

A Chinese wind-turbine company, with financing help from Beijing, has struck a deal to be the exclusive supplier to one of the largest wind-farm developments in the U.S., a sign of how Chinese firms are aggressively capitalizing on America’s clean-energy push.

The 36,000-acre development in West Texas would receive $1.5 billion in financing through Export-Import Bank of China. Shenyang Power Group, a five-month-old alliance, would supply the project with 240 of its 2.5-megawatt wind turbines, among the biggest made in the world.

The Obama administration is hoping a shift to renewable energy will inject new life into the U.S. manufacturing base and provide high-paying jobs, making up for losses in other sectors. But while the U.S. has poured money into renewable energy through tax credits and other subsidies, China has positioned itself to reap many of the benefits by ramping up its export machine.

Global manufacturing of wind turbines shifted primarily to Europe from the U.S. after the 1980s, as nations such as Spain created special pricing for renewable power. By 2005, less than a quarter of components going into turbines installed in the U.S. were made domestically.

The extension of a production tax credit stimulated domestic output during the past few years. But Elizabeth Salerno, a spokeswoman for the American Wind Energy Association, said that in the first three quarters of 2009, there were 33% fewer announcements of U.S. turbine-factory expansions than in the comparable period of 2008.

U.S. officials and domestic suppliers have been concerned that the U.S. wouldn’t reap the full benefit of the country’s rapid expansion in renewable energy. Sen. Jeff Bingaman (D., N.M.) has voiced concern that the U.S. has outsourced much of its clean-energy manufacturing capacity. As part of the stimulus bill earlier this year, he earmarked a $2.3 billion tax credit for domestic producers of clean-energy equipment.

Another hurdle is that many renewable-energy projects in the U.S. are having trouble securing financing because of tight credit markets and lower prices for power sales. As a result, many privately funded projects have been scaled back or canceled.

The federal government is trying to breathe new life into the industry and last month handed out more than $500 million in grants to a dozen wind and solar-energy projects.

Cappy McGarr, managing partner of U.S. Renewable Energy Group, a private-equity firm that is lead partner on the 600-megawatt development, said the partnership would seek tax credits and support from the federal stimulus package, which should amount to millions of dollars. Mr. McGarr said the project should create 2,800 jobs — of which 15% would be in the U.S. The rest would flow to China, where Shenyang employs 800 people.

Meanwhile, China is planning on future investments in the U.S. renewable industry as a way of creating a market for Chinese wind and solar equipment manufacturers.

“This is just the beginning,” said Lu Jinxiang, chief executive of A-Power Energy Generation Systems Ltd., which controls Shenyang Power. He said the U.S. “is an ideal target” as it seeks to shift to renewable energy from fossil fuels.

The West Texas project exclusively would use 2.5-megawatt turbines made at Shenyang’s turbine-manufacturing facility. The Texas project would soak up more than half of Shenyang’s current annual production of 1,125 megawatts of turbine capacity.

The project still must garner the necessary permits, but developers hope to have turbines in service in March 2011.

CAMBRIDGE – When will China finally realize that it cannot accumulate dollars forever? It already has more than $2 trillion. Do the Chinese really want to be sitting on $4 trillion in another five to 10 years? With the United States government staring at the long-term costs of the financial bailout, as well as inexorably rising entitlement costs, shouldn’t the Chinese worry about a repeat of Europe’s experience from the 1970’s?

During the 1950’s and 1960’s, Europeans amassed a huge stash of US Treasury bills in an effort to maintain fixed exchange-rate pegs, much as China has done today. Unfortunately, the purchasing power of Europe’s dollars shriveled during the 1970’s, when the costs of waging the Vietnam War and a surge in oil prices ultimately contributed to a calamitous rise in inflation.

Perhaps the Chinese should not worry. After all, the world leaders who just gathered at the G20 summit in Pittsburgh said that they would take every measure to prevent such a thing from happening again. A key pillar of their prevention strategy is to scale back “global imbalances,” a euphemism for the huge US trade deficit and the corresponding trade surpluses elsewhere, not least China.

The fact that world leaders recognize that global imbalances are a huge problem is welcome news. Many economists, including myself, believe that America’s thirst for foreign capital to finance its consumption binge played a critical role in the build-up of the crisis. Cheap money from abroad juiced an already fragile financial regulatory and supervisory structure that needed discipline more than cash.

Unfortunately, we have heard leaders – especially from the US – claim before that they recognized the problem. In the run-up to the financial crisis, the US external deficit was soaking up almost 70% of the excess funds saved by China, Japan, Germany, Russia, Saudi Arabia, and all the countries with current-account surpluses combined. But, rather than taking significant action, the US continued to grease the wheels of its financial sector. Europeans, who were called on to improve productivity and raise domestic demand, reformed their economies at a glacial pace, while China maintained its export-led growth strategy.

It took the financial crisis to put the brakes on US borrowing train – America’s current-account deficit has now shrunk to just 3% of its annual income, compared to nearly 7% a few years ago. But will Americans’ newfound moderation last?

With the US government currently tapping financial markets for a whopping 12% of national income (roughly $1.5 trillion), foreign borrowing would be off the scale but for a sudden surge in US consumer and corporate savings. For the time being, America’s private sector is running a surplus that is sufficient to fund roughly 75% of the government’s voracious appetite. But how long will US private sector thrift last?

As the economy normalizes, consumption and investment will resume. When they do – and assuming that the government does not suddenly tighten its belt (it has no credible plan to do so) – there is every likelihood that America’s appetite for foreign cash will surge again.

Of course, the US government claims to want to rein in borrowing. But, assuming the economy must claw its way out of recession for at least another year or two, it is difficult to see how the government can fulfill its Pittsburgh pledge.

Yes, the Federal Reserve could tighten monetary policy. But they will not worry too much about the next financial crisis when the aftermath of the current one still lingers. In our new book This Time is Different: Eight Centuries of Financial Folly , Carmen Reinhart and I find that if financial crises hold one lesson, it is that their aftereffects have a very long tail.

Any real change in the near term must come from China, which increasingly has the most to lose from a dollar debacle. So far, China has looked to external markets so that exporters can achieve the economies of scale needed to improve quality and move up the value chain. But there is no reason in principle that Chinese planners cannot follow the same model in reorienting the economy to a more domestic-demand-led growth strategy.

Yes, China needs to strengthen its social safety net and to deepen domestic capital markets before consumption can take off. But, with consumption accounting for 35% of national income (compared to 70% in the US!), there is vast room to grow.

Chinese leaders clearly realize that their hoard of T-Bills is a problem. Otherwise, they would not be calling so publicly for the International Monetary Fund to advance an alternative to the dollar as a global currency.

They are right to worry. A dollar crisis is not around the corner, but it is certainly a huge risk over the next five to 10 years. China does not want to be left holding a $4 trillion bag when it happens. It is up to China to take the lead on the post-Pittsburgh agenda.

If the Obama administration was managing a company, it might have hoped the latest gross domestic product numbers would be greeted with cries of "great quarter, guys!"

At least the stock-market obliged, rising on better-than-expected GDP data Thursday morning. But then bulls have grown used to looking to Washington, D.C., for inspiration. Zero rates and stimulus programs boost economic data as well as nudge money towards riskier assets.

Fully 2.2 percentage points of the third quarter's 3.5% growth figure related to vehicle purchases and residential construction, both juiced by government support. Federal spending added 0.6% to growth.

If these GDP data really were company earnings, they would be what analysts euphemistically call "low quality." Investors buying into the market on these figures are ignoring weekly unemployment claims data that came in above 500,000 again on the same day.

The wider danger is that all these short-term fixes leave the economy dangerously addicted to taxpayer-funded steroids. The circularity in the housing market, whereby Washington provides tax-breaks to first-time buyers, guarantees most of the mortgages written, and then buys most of those, beggars belief — and suggests a worrying case of amnesia following the bursting of the housing bubble.

Another idea that has been floated is to give tax-breaks to firms encouraging them to hire. Yet with quarterly earnings besting forecasts so far, it doesn't look like firms are exactly short of funds to pay workers. What they lack is a clear sense that the economy is on a stable footing. Distorting the cost of money, durable goods demand and labor productivity will not help that; it will merely serve to build up further problems.