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US toughens demand for China currency action

source: news.yahoo.com

WASHINGTON (AFP) – US Treasury Secretary Timothy Geithner said it was "past time" for China to lift barriers to US exports, as he faced demands from angry lawmakers for sanctions against Beijing.
Geithner abandoned his previously restrained approach to bluntly warn China it must let the yuan rise in value against the dollar to end trade distortions.
Facing November elections shaped by voter anger at the sour economy, US lawmakers are weighing bills that would slap sanctions on Chinese goods, amid accusations that Beijing keeps its currency -- and thereby its exports -- artificially cheap.
"It is past time for China to move" Geithner said, adding that ending Chinese currency and other trade distortions were "core objectives."
But Geithner faced fire from friend and foe alike for not labeling China a currency manipulator in his recent semi-annual report to Congress -- a move that could set in motion a process for retaliation.
"At a time when the US economy is trying to pick itself up of the ground, China's currency manipulation is like a boot to the throat of our recovery. This administration refuses to take that boot off our neck," said Democratic Senator Charles Schumer.
His comments were echoed by fellow Democrat Christopher Dodd who said: "It's clearly time for a change in strategy." Dodd also urged the US to take its case to the International Monetary Fund, who can probe currency manipulation.
The Treasury Department's next currency report is due on October 15. The last time the United States declared China a currency manipulator was in 1994.
The issue appeared to have been defused in June when China pledged to let the yuan trade more freely against the dollar, but Geithner has reiterated that he is still not satisfied with Beijing's moves to loosen its grip on the currency.
Despite June's "important" pledge, Geithner said the Chinese currency's value was "essentially" unchanged in the last two years.
"China has continued to intervene in the exchange markets on a very substantial scale to limit the upward pressure of market forces on the Chinese currency."
Since June the yuan has appreciated about 1.6 percent against the greenback and traded at 6.7181, its highest level since the Chinese decision, on Wednesday.
The yuan is thought to be undervalued by 10 to 30 percent.
According to Fred Bergsten of the Washington-based Peterson Institute China's movement could help create "about half a million US jobs, mainly in manufacturing."
But China on Thursday warned outside pressure to change its currency regime would be counterproductive.
"The appreciation of the renminbi (yuan) cannot solve the US trade deficit against China and it cannot solve the US domestic unemployment issue," foreign ministry spokeswoman Jiang Yu told reporters.
"The issues in China and US economic relations and trade should be properly solved through consultations on an equal footing. Exerting pressure cannot solve the issue. Rather, it may lead to the contrary."
Despite his harsh warnings Geithner also tried to put the currency dispute in the context of a wider and mutually beneficial trade relationship with the fast-emerging economic super-power. Boosting trade with China is seen as vital to President Barack Obama's goal of doubling exports in five years. "We have very significant economic interests in our relationship with China," Geithner said. US exports to China have tallied more than 53 billion dollars since the beginning of this year. But trade tensions with China were ratcheted up another notch on Wednesday when Washington called on the WTO to probe unfair Chinese trade practices. The United States is accusing China of unfair treatment of US steel and electronic payment providers, the first step toward sanctions.

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By Wang Bo, Lan Lan and Chen Weihua (China Daily)

China rejects US demands over currency
BEIJING/New York - China warned on Thursday that obsessing over yuan appreciation would not solve trade problems in the United States and "might make things even worse", while economists view US demands as a political ploy ahead of midterm congressional elections.
"Adding pressure will not resolve trade issues between China and the US the country's exchange rate reform will only be pushed forward in accordance with economic conditions and balance of international payments," Foreign Ministry spokeswoman Jiang Yu said at a media briefing.

Jiang's remarks came in response to earlier comments by US Treasury Secretary Timothy Geithner, who expressed dissatisfaction with the pace of the yuan's appreciation in testimony prepared for congressional hearings on China's currency policy.

The yuan was traded at 6.7181 against the greenback on Thursday, its highest level since June 19, when the central bank announced that it would deepen reform of the mechanism governing the yuan exchange rate to improve its flexibility.
The Chinese currency has gained 1.6 percent against the US dollar since that date. But the US still thinks it is not enough.
"We are concerned that the pace of appreciation has been too slow and the extent of appreciation too limited," Geithner said in remarks to the US Senate Banking Committee on Thursday.
"We are examining the important question of what mix of tools, those available to the US and multilateral approaches, might help encourage the Chinese authorities to move more quickly (on yuan appreciation)," Geithner said.
His remarks came as the Obama administration was under intense pressure to revitalize the flagging economy and cut high unemployment ahead of November's midterm elections.
The jobless rate in the US reached 9.6 percent in August, prompting Obama to unveil a raft of tax cuts and infrastructure projects to spur economic growth.
Economists and bank executives said politics in Washington is playing a role in the issue as blaming the "undervalued" yuan for the US trade deficit with China will divert public attention from the state of the economy and could be politically popular.
"It is simply a political game," said Ding Yifan, deputy head of the Institute of World Development at the State Council's Development Research Center. "The yuan issue is easy to attack as the Democrats fear midterm election losses" if Obama's economic plans failed to match expectations.
In New York, Stephen Roach, non-executive chairman of Morgan Stanley Asia, said that "with the election season in hand, the drumbeat in Congress is getting louder and the Obama administration and the Democratic party in general are in serious trouble. The rhetoric is led more by politics than by global economics".
"If we think for a moment that we are going to solve this problem by bashing the Chinese we are deluding ourselves," he said in an address to some 200 members of the Council on Foreign Relations on Thursday morning.
Roach, who has testified repeatedly before Congress on the issue, said the main problem for the US is the lack of national savings, which is now at minus 2.5 percent of GDP. "So we need to import more surplus savings from abroad in order to grow. And Congress is clueless, it does not understand this."
Jacob Frenkel, chairman of JP Morgan Chase International, said the issue will not be solved unless the gap in savings between China and the United States is filled.
While acknowledging it was China's choice to make, he advised the US administration to have a more constructive dialogue with the Chinese to develop financial markets. That will transform the debate of exchange-rate rivalry into a constructive, win-win situation for everyone, Frenkel said.
Yu Yongding, economist and former central bank advisor, said that it is essential not to exaggerate the effect of currency appreciation on the balance of trade.
"The exchange rate is just one of many factors which affects trade balances," Yu said.
"It is worth noting that the income effect of global demand is significantly larger than the exchange rate on China's trade balance," Yu said.
Bill Rhodes, senior vice-chairman of Citigroup Inc and Citibank, said blaming the yuan's exchange rate is not reasonable. "There are lots of reasons for the imbalance of trade, such as the rate of savings. Adjusting exchange rates cannot solve all the problems. Just look back at what happened in Japan," Rhodes told China Daily.

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Xinhua      Web Editor: Zhang Jin

source: english.cri.cn

Time and time again and with the excuse of the self-proclaimed "for the benefit of America," some U.S. lawmakers and business groups clamor for increased pressure on China to revalue its currency. When times turn tough, the weary argument finds even more traction.
This time, as many as 132 Democrats are finding their "right time" to lodge such an assertion as the U.S. trade deficit with China rises rapidly and the unemployment rate hovers at close to 10 percent across America. A tough stance on China's exchange rate now could play well during the coming mid-term elections.
The lawmakers have labeled China a "currency manipulator" and demand that Beijing let the Chinese yuan, or Renminbi, appreciate to balance its trade and narrow the huge deficit.
Their efforts are attempting to make China an easy scapegoat for America's economic woes and are in no regard to the fact that the value of the yuan has increased by up to 20 percent since 2005.
The Americans should be bold enough to put the responsibility for creating the trade imbalances on their own shoulders instead of trying to cast blame on others. The entire world knows the United States doesn't bank much money and counts on the world's savers, such as China, to run large current accounts and trade surpluses to provide America with capital.
Applauding Treasury Secretary Timothy Geithner's decision to not label China as a currency manipulator in a delayed report in July, Stephen Roach, chairman of Morgan Stanley Asia, said the bulk of China's foreign exchange reserves helps fund the massive U.S. savings shortfall.
Roach warned that a reduced buying of goods from China, America's largest foreign lender, would put sharp downward pressure on the dollar and possibly trigger a dreaded double dip in the U.S. economy. That, many fear, could create turbulence in the country's fragile economic recovery.
Instead, the answer to U.S. trade imbalances lies in structural reforms. But regrettably, the changes necessary to produce such reforms cannot occur overnight.
There are two common options in government policies to curb trade imbalances: adjusting the exchange rate or turning to protectionism. The past two years have seen China falling victim to U.S. protectionist measures adopted in the wake of the global financial crisis.
The motives for the mounting pressure on China over the yuan have been widely questioned, even in the United States. As the U.S. mid-term elections approach, the political clamoring will expectedly turn increasingly shrill.
Many wonder if the lawmakers are really speaking against China for the benefit of Americans or only out of their selfish desire to please their constituents and gain more votes ahead of the coming elections. A common view is that, to some extent, the lawmakers are looking to improve their public image in an effort to pocket more political capital.
On Tuesday, 36 U.S. farm and business groups, including the U.S.-China Business Council, the American Soybean Association and the American Meat Institute, urged the Congress not to pass any legislation threatening China with new duties if Beijing does not revalue the yuan.
"Estimations of the correct currency value would be inherently subjective, unilateral and potentially politicized since there is no agreed upon method to determine what a country's exchange rate should be in the absence of a market-based determination," the groups said.
Another reason to question the lawmakers' motives is based on the credibility of the data they cite in accusing Beijing of undervaluing the yuan by 24 percent to as much as 40 percent.
The figures the lawmakers cite were drawn from previous IMF predictions that China's current account would represent 8 percent of its gross domestic product by 2015. Based on that prediction, the Chinese yuan needs to appreciate 24.2 percent to achieve the current account/GDP target ratio of 3 percent.
Please forget the predictions that always vary widely from what happens in reality. China's real current account represented 6 percent of its yearly GDP in 2009, a figure that means the yuan needs only to appreciate 10 percent to reach the target ratio of 3 percent.
The true situation this year shows China does not need to revalue the yuan at all, considering China's decreased trade surplus during the past nine months and a likely drop in its current account/GDP ratio to below 4 percent.
At the same time, many people worry that the yuan issue could spark a trade war between the world's two largest economies and trigger a spate of protectionism that might endanger the fragile global economic recovery.
Past experience shows that global peace and prosperity is impossible without China's participation, and as the world's biggest developing country, China cannot develop itself without the help of other countries.
Therefore, the U.S. should rein in those congressmen yapping for Beijing to revalue the yuan and join hands with China to build a positive, cooperative and comprehensive relationship for the 21st century.

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BEIJING - The central parity rate of the yuan, China's currency Renminbi (RMB), gained only by 9 basis points Friday but still struck a new record high at 6.7172 per US dollar, according to the data released by the China Foreign Exchange Trading System.

Friday's yuan central parity against US dollar beat previous record of6.7181 per US dollar on Thursday, according to the data released by the China Foreign Exchange Trading System.

China's central bank announced on June 19 this year that it would further the reform of the formation mechanism of the yuan exchange rate to improve its flexibility.