China’s Wen Rebuffs U.S. Calls for Stronger Currency
Chinese Premier Wen Jiabao rebuffed calls for the yuan to appreciate, risking a further downturn in relations with the U.S. where lawmakers and economists say his stance is hampering a global recovery.
“I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”
U.S. lawmakers, including Senator Charles Schumer, are proposing that China should be hit with stiffer tariffs to compensate for the unfair export advantage they say comes from an undervalued currency. Economist Paul Krugman says that global growth would be about 1.5 percentage points higher if China stopped restraining the value of the yuan.
“Currency is the issue in Washington that is really welling up and getting more and more pressure,” said James McGregor, a senior counselor in Beijing at APCO Worldwide, a public-affairs group advising clients including China Cosco Holdings Co., operator of the world’s largest dry-bulk fleet. President Barack Obama “has tried to be low key and work with China behind closed doors — the problem is they have given him no face in return and he is under real pressure in Washington because he’s looking weak against China.”
Yuan Forwards Fall
Non-deliverable yuan forwards fell 0.2 percent to 6.6427 per dollar as of 9:43 a.m. in Hong Kong today, the biggest decline in more than a month. The contracts indicate that traders are betting the currency will gain about 2.8 percent in the next 12 months.
Wen also urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit.
The U.S. currency has climbed about 7 percent from last year’s Nov. 25 low, according to the Dollar Index, a six- currency gauge of the greenback’s value.
Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion. Only Japan holds more U.S. Treasury assets.
Wen, 67, echoed central bank Governor Zhou Xiaochuan’s comments that China needs to be cautious in ending crisis policies, which have included pegging the yuan at about 6.83 per dollar since July 2008 as the global financial crisis took hold.
The premier reiterated that the nation will keep the yuan “basically stable” and maintain a moderately loose monetary policy and a proactive fiscal stance. He said it’s “essential” for the timing of any policy changes to be appropriate.
“This is a sign that there will be no one-off revaluation in coming months,” said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. “China’s top policy makers do have their own currency reform plans but coercion from other countries will do disservice to this cause.”
A bipartisan group of U.S. senators including Schumer, a New York Democrat, wrote Commerce Secretary Gary Locke last month, saying imports from China are being subsidized by that nation’s intervention in the currency market.
The Chinese premier said that pressure for currency gains can amount to trade “protectionism,” adding that “I’m a strong supporter of free trade.” Protectionism affecting China will backfire because much of the nation’s trade involves foreign-invested exporters, Wen said.
The yuan rose 21 percent against the dollar between July 2005 and July 2008, before the government halted its advance to protect exporters. The dollar and the yuan have strengthened against the euro this year, pushing up the cost of Chinese exports in the European Union, the Asian nation’s biggest market.
Krugman, a Nobel Prize-winning economist, said China’s currency policy has a “depressing effect” on economic growth in the U.S., Europe and Japan. If the yuan were not undervalued, it would have a “significant” impact on the global recovery, he said in a March 12 speech in Washington.
Ballooning sovereign debt and high unemployment around the world could send the global economy into a second, or “double dip” downturn, Wen said. In China, inflation, combined with wide income gaps and official corruption, could lead to social instability “and even affect the government’s hold on power,” he said.
Policy makers have made managing “inflation expectations” a key task for this year. February’s gain in consumer prices was 2.7 percent, compared with Wen’s target of about 3 percent for the year. Zhou said yesterday that while the increase was a little higher than forecast, it hadn’t altered the central bank’s plans.
China’s difficult task is to grow without stoking inflation and while adjusting an economic model that has led to an “‘unbalanced, uncoordinated and unsustainable” expansion, Wen said. Officials will maintain “appropriate and sufficient” liquidity and keep interest rates at “reasonable” levels, he added.
Wen blamed strains in China’s relationship with the U.S. on Obama’s meeting with the Dalai Lama and American arms sales to Taiwan. He expressed hope for an improvement in “our most important diplomatic relationship.”
Asked about increasing dissatisfaction among foreign businesses in China over the investment climate, the premier sought to reassure international investors.
In January, Mountain View, California-based Google Inc. said it may close down its Chinese Web site because of alleged cyber attacks and China’s ongoing online censorship.
“China will unswervingly pursue the policy of opening up to the outside world,” Wen said. “Foreign businesses are welcome to come to China to set up businesses according to the law.”