Tags: China | demands | currency | rift

China Ignores Obama Currency Demands

Thursday, 04 Feb 2010 09:51 AM

 

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BEIJING - Chinese officials reacted coolly on Thursday to a vow by President U.S. Barack Obama to get much tougher with China over the yuan's exchange rate, which Washington believes is artificially undervalued.

The government had no immediate official comment, but Li Jian, a researcher with a think tank under the Ministry of Commerce, said Beijing was unlikely to change its currency policy in response to pressure from Washington.

"Even if China wants to adjust its exchange rate, it is nearly impossible for Beijing to meet the demands of the U.S. -- this is China's own business," Li told Reuters.

He said the yuan rate would be relatively stable in 2010.

"There won't be any sudden or major yuan appreciation," Li said. "When it comes to the exchange rate, China's main consideration is China's own stable economic growth and the structural adjustment of its economy. Foreign pressure is only a secondary consideration."

"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price." Obama told a meeting with Senate Democrats on Wednesday. [ID:nTOE61205X]

Zuo Chuanchang, a researcher with the Academy of Macroeconomic Research, a think-tank under the National Development and Reform Commission, said Obama's tough talk was meant to appeal to his domestic audience rather than to seriously put pressure on Beijing.

"It's a political show, and it does really mean too much," Zuo said, expressing a personal view not that of the NDRC, China's main planning agency.

Like Li, he said exchange rate policy was a "sovereign issue" and China would not bow to foreign pressure.

"Yes, we can make some promises over some international issues, but you can't force China to do things," Zuo said.

China revalued the yuan by 2.1 percent against the dollar in July 2005 and let it rise a further 19 percent over the following three years. But it froze the currency's appreciation in July 2008 to help its exporters weather the global economic crisis.

Most market economists do expect China to let the yuan start climbing gently again sometime this year, now that year-on-year export growth has resumed, the overall economy is expanding at a double-digit pace and inflation is rising.

A stronger exchange rate would dampen inflation and encourage businesses to produce for the domestic market, not for export.

But markets are not counting on a brisk rise.

"Previous tough comments on the yuan from the U.S. administration have typically led nowhere," said a U.S. bank dealer in Shanghai. "The market is not sure the latest comments by Obama will really lead to a tougher U.S. stance on the yuan."

Offshore one-year dollar/yuan non-deliverable forwards (NDFs) CNY1YNDFOR=, a rough gauge of market sentiment, on Thursday implied a 2.8 percent rise in the yuan over the next 12 months, slightly less than on Wednesday. The yuan's spot exchange rate, which is tightly controlled by the central bank, was nearly flat.

"China is unlikely to make significant concessions to U.S. pressure on the yuan, particularly now when the two countries are involved in a range of disputes, including U.S. arms sales to Taiwan," said a Chinese state-owned bank dealer in Beijing.

"If the United States takes a tougher line on yuan, it may prove to be counterproductive," the dealer said.

In a comment in the People's Daily, the ruling Communist Party's mouthpiece, Fang Ming, an analyst with Bank of China, said demands for a stronger yuan ignored the quite considerable rise in the exchange rate since 2005.

"Some state leaders and famous economists are still joining the chorus calling for the yuan to appreciate. It really is ridiculous," Fang said.

He reiterated Beijing's official line that China had already made a big contribution to the global economy through prompt measures to pump up its own growth.

While playing down Obama's chances of persuading China to let the yuan rise, government researchers minimised the risk of a crisis in relations over the issue.

Two-way trade ties would continue to flourish, said Li with the Ministry of Commerce. "Both China and the U.S. can benefit greatly from bilateral trade, and that's still the mainstream view on both sides," he said.

Zuo with the NDRC agreed that a row over the yuan would not lead to anything like a trade war. "It's very normal to see some disputes between China and the United States, but this doesn't mean there will be a bust-up," he said.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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