Archive for Sunday, April 4, 2010

U.S. to delay China currency report

Country accused of manipulating value

April 4, 2010


— In a surprise announcement, Treasury Secretary Timothy Geithner said Saturday that he will delay for three months the much-anticipated decision on whether or not to brand China a currency manipulator.

Geithner was poised to make the announcement before an April 15 deadline that requires the agency to annually report to Congress about nations that artificially value their currency to the disadvantage of U.S. companies.

Democrats in Congress and even trade advocates have for weeks demanded that the Obama administration take action against China. They say the undervalued yuan hurts both U.S. exports to China and makes Chinese products unfairly cheap here.

“There are a series of very important high-level meetings over the next three months that will be critical to bringing about policies that will help create a stronger, more sustainable, and more balanced global economy,” Geithner said in a statement, promising to press China in three high-profile meetings. “I believe these meetings are the best avenue for advancing U.S. interests at this time.”

Geithner’s statement comes just two days after Beijing announced that Chinese President Hu Jintao will attend a nuclear security summit meeting in Washington on April 12-13. Even as the United States seeks to curb China’s currency rate setting, it also needs China’s support for U.N.-backed sanctions against Iran and its nuclear ambitions, and Geithner’s announcement appeared to be timed before Hu’s arrival.

Saturday’s announcement by Geithner gives China a way to address U.S. concerns while saving face. It avoids a decision made under an embarrassing deadline.

China repeatedly has denied its exchange rate is fixed to the disadvantage of foreign competitors. But economists in the United States and Europe believe currency manipulation explains why China continues to have such a large trade surplus with most of the developed world.

U.S. policymakers had resisted branding China a currency manipulator, fearing it would stop China from buying U.S. government debt. China and Japan rival each other as the largest purchaser of U.S. debt.


barrypenders 4 years ago

But the flurry of discussion masks the central problem. China’s policies assume that the world will graciously allow it to break the norms of international trade by strictly controlling the value of its currency, as many developing countries do. They ask the developed world to patiently suffer the evisceration of its own manufacturing sector until such time as Beijing believes it can wean its industries off a weak currency, and push them out of the nest to try their wings. For decades this assumption was economically beneficial for almost everyone. But circumstances have changed. Few are willing to accept the idea that a country with a $4.9 trillion economy — a country that recently surpassed Germany as the world’s leading exporter and will soon surpass Japan as the second biggest economy overall — deserves to skirt international rules. Not to mention the elephant in the room: China’s apparent exemption from full currency convertibility.

The United States, for one, does not appear willing to grant these favors any longer, and sees this fundamental point — China’s deviation from set standards — as true regardless of midterm elections. Washington sees China’s position as ludicrous, and while it may not immediately demand full convertibility, it is showing every sign of attacking the yuan peg. Beijing sees the currency peg as anything but ludicrous, since strengthening the currency inherently threatens social instability. Which would explain why the Chinese are reaffirming their own reasons for gradually strengthening the yuan, negotiating to allay Washington’s agitation and rushing to prepare for the economic fallout at home.

Stimulus, PAD Transformation and Posercare live unprecedented

Darwin bless us all


barrypenders 4 years ago

The proper way to interpret Li’s remarks, then, is to focus on his emphasis on China not succumbing to U.S. pressure, but changing its currency policy on its “own initiative.” With the U.S. government bearing down, Li’s statement appears crafted to begin the process of saving face. Domestically, the Chinese government cannot be seen as caving in to American demands. But for months China has internally debated the merits and flaws of removing the currency peg. What Li is doing is reaffirming that currency appreciation would assist in China’s badly needed economic restructuring by boosting domestic purchasing power, weeding out inefficient industries and making others more competitive, and fighting inflation expectations. He is arguing that appreciation is not some foreign imposition, but rather a Chinese policy implemented for the good of the Chinese people.

China is thus signaling to the United States that there is no need to get overexcited or overaggressive. The currency will move. The only questions concern magnitude and timing. For the Chinese, it is critical to limit and prolong the currency’s appreciation, since they argue each percentage point increase in the yuan’s value will shave the already razor-thin profit margins of China’s all-important exporters. The last time Beijing allowed the yuan to strengthen, in 2005, it ascended about 20 percent over the course of three years. The situation now is more delicate as it does not come amid one of the biggest credit and consumption booms in history, but amid a period of recovery from global recession in which China’s major export markets have begun to increase savings and cut back on spending. In short, Beijing knows that if it allows the yuan to rise it will do so during a time of weaker external demand than before — not to mention the problem of creeping wage inflation on China’s coasts, which will also eat away at exporters’ profits.

What is surprising is the extent to which the debates over the exchange rate adopt China’s rationale. In governments and institutions, among academics and experts of every stripe, in the United States, Europe and Japan, an increasingly abstruse debate has circulated around the precise expectations, limits, measures and effects of each degree of yuan appreciation. Some say the currency is undervalued by 20 percent, others say 40 percent. Getting China to revalue the yuan by X amount would save Y jobs and reduce the trade deficit by Z.


barrypenders 4 years ago

Wednesday, March 31, 2010

China's Currency Debate THE WAR OF WORDS BETWEEN CHINA and the United States on the subject of China’s currency, the yuan or renminbi, saw a momentary reprieve on Tuesday, when two out of three newly appointed members of the People’s Bank of China monetary policy committee entered the debate. Just one day after being appointed, Li Daokui said China should adjust its exchange rate on its “own initiative” before September, so that the currency does not get caught up in the politics of U.S. midterm elections. Xia Bin said China should resume its policy of permitting the yuan to gradually appreciate, as was done from 2005 to 2008. Separately, U.S. President Barack Obama met with China’s new ambassador to the United States and called for a “positive relationship” with China, only hinting at the underlying economic strains by saying the two should work together on sustainable and “balanced” global economic growth.

On the surface, Li’s statement was absurd. The question of China’s fixed exchange rate — its peg to the U.S. dollar, giving it an advantageous position in U.S. markets — has been thoroughly entangled in U.S. domestic politics since Treasury Secretary Timothy Geithner used the word “manipulation” during his confirmation hearings in early 2009, and has become more so in recent months. Although the U.S. economy has emerged from recession, unemployment remains lodged at nearly 10 percent, a fact that gnaws on the Democratic Party as it approaches already contentious elections in November. Not only are the Democrats historically linked to U.S. manufacturers and more inclined to use protectionist policies to defend them, but also they traditionally have fewer qualms about pushing back on America’s East Asian trade partners.

Congress has already leapt into action, proposing a bill that would force the U.S. Treasury Department to take a strict interpretation when it assesses whether to accuse China of formally “manipulating” its currency in a report due April 15. The bill would clear the way for punitive measures as well. Bottom line, few issues could be more politicized. Having passed a major domestic hurdle with health care, Obama has set his sights on a foreign policy victory. But sanctions on Iran have already been watered down, and the surge is only beginning in Afghanistan. In other words, playing hardball on China’s currency is one foreign policy issue where Obama can boost his party in elections. And joblessness — not Iran’s nuclear program — is the American public’s number one concern.


jmadison 4 years ago

Hmm-- I wonder if China being one of the largest buyers of US debt had anything to do with Turbotax Tim Geithner delaying this report.


Commenting has been disabled for this item.