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Obama's dependence on China

To create US jobs, he'll need to make sure Beijing doesn't rev up its export machine.

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Generating jobs in the US will take more than bailouts of faltering firms, handouts to "green" industries, or stimulus spending. In its early days, the Obama administration will need to also look to China to fix an imbalanced trade relationship that not only helped create the US housing bubble but could delay an end to this recession.

The giant Chinese export machine has fallen swiftly as US consumers have been forced to turn thrifty. One sign: Electricity generation in China, which had been rising 15 percent a year, fell 7 percent in November from a year earlier.

How China responds to its economic downturn will be watched carefully. Last year, it was the greatest contributor to global growth. US Treasury Secretary Henry Paulson visited Beijing last week to persuade it to avoid revving exports with more subsidies or by manipulating its currency to keep exports cheap. It's not clear if his gentle persuasion will work.

A follow-up trip to China by Barack Obama himself soon after he takes office may be in order.

During recent good times, China churned out inexpensive products that Americans eagerly bought, helping to keep inflation low. But that flood of goods also destroyed entire US industries. And with $2 trillion in reserves, China recycled its export dollars back into US credit markets. It is now the largest holder of US Treasuries, beating out Japan in September.

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