A collapse in exports and industrial overcapacity are the two main factors dragging on China’s economy. The 6.1% expansion follows growth of 6.8% in the previous three months and 9% for all of 2008.

The global financial crisis has obliterated overseas demand for Chinese goods and factory closures have force millions of migrant workers back to the countryside. But still other data suggests that this could be the low point for China’s economy.

Industrial production expanded by 8.3% in March from a year earlier, up from 3.8% in the first two months of the year. Retail sales rose 14.7% – an indication that domestic demand is picking up. Auto sales jumped 10% in March from a year earlier, and 27% from February, to 772,400.

Even the decline in exports is slowing. After tumbling by 25.7% in February, exports fell 17.1% March.

Also, a 30.3% surge in urban fixed-asset investment – China’s benchmark measure of capital spending – is proof that the nation’s robust $585 billion in stimulus is beginning to take effect.

Beijing continues to assert that it will reach its growth target of 8% annual growth. And while independent analysts remain skeptical, they still foresee stronger growth for the Asian juggernaut going forward.

The Organization of Economic Cooperation and Development (OECD) forecasts 6.3% growth for China’s economy this year, compared with a 4.4% contraction in the United States. Royal Bank of Scotland Group PLC (ADR: RBS) has raised its forecast from 6.5% to a range of 7%-7.5%.

“The stimulus policies – both fiscal and credit expansion – led by the government is certainly the main driver of the rebound. The full impact of those stimulus policies will be shown in the coming months,” UBS Securities economist Wang Tao told The Wall Street Journal.

Wang estimated that first-quarter GDP grew around 7% from the fourth quarter on an annualized, seasonally adjusted basis, and she expects sequential growth of 12% in the second quarter.

Source: China’s Growth Slows but a Rebound May be on the Way

In written responses to questions posed by the Senate, Geithner accused China of “manipulating” its currency, a phrase former-Treasury Secretary Henry M. Paulson and the Bush administration carefully avoided.

“President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency,” Geithner wrote.

During his stint in the Senate, President Obama co-sponsored the Fair Currency Act of 2007, which defined currency misalignment as an export subsidy, paving the way for the U.S. Department of Commerce to impose countervailing duties on Chinese goods.

“At least partially as a result of the administration’s failure to address Chinese currency manipulation, the U.S. imported more than $232 billion in goods from China than we sold to it last year,” Obama wrote in support of the bill.

The bill failed to garner Congressional approval, but according to Geithner, “Obama has pledged as president to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

Geithner also said the administration would push China on further economic stimulus.

“Because China accounts for such a large fraction of the world economy, a further slowdown in China would lead to a substantial fall in world growth (and demand for U.S. exports) and delay recovery from the crisis,” he said. “Therefore, the immediate goal should be for us to convince China to adopt a more aggressive stimulus package as we do our part to try to pass a stimulus package here at home.”

China’s economy expanded by just 6.8% in the 2008 fourth quarter, and 9% for the whole year. The world’s third-largest economy expanded by 13% in 2007.

When it came to China, former Treasury Secretary Paulson utilized a much lighter touch, an approach that emphasized diplomacy with the hope that this non-confrontational approach would gradually induce that communist nation into accepting a more open economy.

When asked whether he would continue the U.S.-China Strategic Economic Dialogue initiated by his predecessor, Geithner acknowledged that while there are certain challenges posed by Chinese economic policy, there are also opportunities and benefits inherent to increased cooperation.

“If confirmed, I am committed to a deep engagement between our senior economic officials to address differences and effectively resolve problems on these topics,” Geithner said.

Still, neither Geithner nor President Obama seem to be starting out on the right foot with Chinese policymakers.

Chinese officials “will be more than annoyed” with Geithner’s comments Nicholas Lardy, an economist who specializes in China at the Peterson Institute for International Economics in Washington told Bloomberg News. “They don’t like being singled out, and they don’t like countries explicitly criticizing them for the way they run their economy.”

Source: Geithner, Obama Put Pressure on China Over Currency