Earlier this month, there was a meeting in Beijing between officials of two of the world's biggest economies. On one side of the table, heading the Chinese delegation, there was Wang Qishan, representing state capitalism. And on the other side, leading the US team, we had none other than Henry Paulson, representing crony capitalism.

However, these catchy labels do not capture the whole truth. The US system has never been a pure market form, but a mixture of state and entrepreneurial capitalism. As for cronyism, mention the communist party's role to just about anybody in China and you will get an earful of complaints - declared sotto voce to avoid being arrested.

The Beijing dialogue was intended to address issues related to the financial crisis and the global economic slump. Based on issued statements, the Chinese were in no mood to listen to Hank about how to conduct policy according to free-market principles. By now, the Americans have lost all credibility on these matters.

As if to drive the point home, China allowed a depreciation of the renminbi vis-à-vis the dollar, ahead of the meeting. This was done in the face of the well-known American position that the Chinese currency should be allowed to appreciate in order to rebalance trade.

The US view on exchange rates is sensible, from a longer-run point of view, and is an element in the need to correct major global imbalances. Indeed, it fits in with china's strategic plan to re-orient its economy. But in the short run the authorities are heedful of weakness in export industries and may not be averse to helping them weather the current global storm, via modest currency depreciation.

Chinese officials lectured the visiting Americans, telling them to implement policies to reduce the fiscal deficit and raise the savings rate. They also requested that the safety of China's assets and investments in the US be safeguarded. But they failed to mention their own past role in willingly taking part in the vendor-financing model that allowed the bubble to inflate in the United States and create today's imbalances.

Chinese forgetfulness aside, the tone of the meeting reminded observers of the ongoing shift in political and economic power in favour of China. There is a noticeable change in long-term economic strategy in Beijing. Authorities want to wind down the vendor-financing model of recent years. They wish to rebalance economic activity, giving domestic demand a bigger role, and aiming for greater diversification of export markets.

None of this bodes well for the viability of the US economic model, based on leveraged overconsumption. And the strange thing is that most of the stimulus efforts of the Bush administration are aimed at perpetuating a model that has failed so miserably in the past year. There is little recognition that it is unsustainable in the long run.

Given the deficiencies of the US economy, a stimulus package should be aimed at increasing its productivity and efficiency, and improving its infrastructure. Indeed, the incoming Obama administration has adopted this as one of its goals. However, this sort of programme takes time to implement and its impact on the economy is relatively slow. So the authorities, who are desperate to prevent a possible deflationary outcome, are trying to stimulate the economy with measures that may have a quicker impact but also repeats mistakes of the past.

The US went into this recession with a large government deficit and stretched household finances. These are not conditions that would normally allow further profligacy. But the Treasury is busy issuing enormous amounts of debt and the Fed is printing money with abandon. This may soften the blow delivered by the recession but it will also create great distortions and further problems down the line for the dollar, interest rates and a renewal of inflationary pressures.

Contrast the profiles presented by the United States and China. The latter has sound government finances, substantial external assets and a high household savings rate. large spending programme and easy monetary policy are sensible and will help to balance growth deficiencies. More importantly, these policies are unlikely to cause distortions that have to be resolved in the future. Moreover, given the government's strategic plans for the economy's long-term direction, it is consistent with a higher value for the renminbi in the longer run.

Iraj Pouyandeh is a Strategist and Senior Portfolio Manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com