Blame and recrimination greet Obama in China

President Obama arrives in China this morning to unprecedented Chinese criticism of US economic policies. In unusually blunt remarks, China's top banking regulator, Liu Mingkang, said that a weak dollar and low US interest rates had led to "massive speculation" that was inflating asset bubbles around the world.

The US has created "unavoidable risks for the recovery of the global economy, especially emerging economies," Liu said. The situation is "seriously impacting global asset prices and encouraging speculation in stock and property markets".

Liu's comments underscore how China, through its massive holdings of Treasury bonds, is now secure enough to dictate the agenda. Obama, who arrives seeking pre-Copenhagen concessions on climate change, now stands to have his trip overshadowed by economic and trade tensions.

Over the weekend, regional leaders at the Asia-Pacific summit in Singapore openly questioned Obama's commitment to free trade after the administration placed tariffs on Chinese tires and steel earlier this year.

At the same time, there is mounting anger at the US foot-dragging over binding emissions reduction targets at the climate conference in Copenhagan. Asian leaders concluded at the meeting in Singapore that no deal is likely in Copenhagen.

It's been a bruising Far East adventure so far. Obama had hoped it could help redefine US-Asian relations. Instead, he arrives like an overdrawn borrower in the office of his bank manager. Not only is China likely to resist US pressure to allow its currency to rise higher against the dollar, effectively reducing US debt, but Obama is unlikely to press any issues of democracy or freedom of speech.

The official China Daily newspaper published an editorial suggesting the US needs to "respect China's sovereignty and territorial integrity" - Beijing's policies toward Taiwan and Tibet.

Trade will remain the dominant issue: "The challenge Obama is facing is that the influence of the US is rapidly waning and that he has little credibility” on trade issues, says Marc Faber at Hong Kong-based stockbroker Marc Faber Ltd.

But Liu's comments suggest currency will remain the most vexing problem. Asian central banks have been buying dollars to bring the dollar exchange down, and economists have for some time warned that property prices and stocks in the region are being inflated by the inflow of cheap US currency.

US bankers are keen to note China is inflating bubbles of its own. Critics say the massive expansion in bank loans this year could cause asset price bubbles and inflation. ·