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Chinese Yuan currency - Source: Reuters -
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China said it would not waver in sticking to a stable exchange
rate and was being made a "scapegoat" after the US Congress
threatened to seek duties on Chinese goods unless it re-values its
Yuan.
The heat in the long-running dispute over China's exchange rate
regime is rising quickly, with a bipartisan bill introduced on
Tuesday in the US Senate that aims to press Beijing to let its Yuan
currency rise.
The Managing Director of the International Monetary Fund, Dominique
Strauss-Kahn, added to the pressure on Beijing, saying that the
Yuan is undervalued.
Focusing on the Yuan will not help to solve problems in the Sino-US
bilateral trade relationship, a Chinese Commerce Ministry official
said.
"We oppose the over-emphasis on the Yuan's exchange rate," the
official said, when asked about the bill.
"The Yuan's exchange rate is not a magic potion for solving
global economic imbalances."
In Geneva, a senior China diplomat said the US lawmakers were
unfairly blaming Beijing for their own woes.
"They should not blame the problems they have by finding a
scapegoat in China," He Yafei, China's new ambassador to the United
Nations in Geneva, told a briefing.
The apparent hardening of positions drove the Yuan to a three-week
low against the dollar in the offshore forwards market, implying
just 2.4% of appreciation over the next 12 months.
Ding Zhijie, a professor at the University of International
Business and Economics in Beijing, said US pressure on the exchange
rate was totally counter-productive.
"With such heavy pressure from the United States, any move would
look like giving in to foreign pressure - for both the Chinese
government and the Chinese public, it would be unacceptable," said
Ding, who provides advice to the government.
China's official Xinhua news agency said Washington was making
Beijing unfairly carry the blame for US economic woes ahead of
Congressional elections.
"With the US mid-term elections looming, electoral politics have
again become the priority of the Obama administration," said the
commentary.
Focusing on China's Yuan currency can create a clear target,
offering an explanation to the unemployed of why they lost their
jobs, it said.
Shifting circumstances
The World Bank weighed into the debate, recommending a stronger
exchange rate and a tighter monetary policy to restrain inflation
expectations and asset bubbles in China.
The case for greater exchange rate flexibility had, on balance,
increased over the last year, Ardo Hansson, the bank's lead
economist in Beijing, told a news conference.
"If there is a concern about inflation, if there is a concern about
sensitive capital inflows, this is part of the arsenal for dealing
with these policy issues," he said.
IMF chief Strauss-Kahn said a stronger focus by China on
domestic-led growth would help the Yuan appreciate.
"Some currencies in Asia are undervalued, especially the renminbi,"
he told a committee of the European Parliament in Brussels. The
renminbi is another name for China's Yuan.
Beijing's stance on the Yuan had been consistent and was unchanged,
the Chinese official in Beijing said.
He cited Premier Wen Jiabao and Commerce Minister Chen Deming, who
have said a stable Yuan has contributed to both the Chinese and the
global economic recovery.
"We have repeated ourselves multiple times. And we cannot be any
clearer," the official said.
Friction over deficit
China has in effect pegged the Yuan near 6.83 to the dollar since
mid-2008 to cushion its exporters from the global crisis.
Rising inflation and recovering exports had fuelled market
expectations that Beijing was on the cusp of resuming the gradual
path of appreciation followed for three years starting in
mid-2005.
Wen on Sunday recommitted China to pushing ahead with reform of the
Yuan's exchange rate mechanism, leaving the door open to
reintroducing exchange rate flexibility if it suits Beijing.
But the premier also said that the Yuan was not undervalued and
said calls for appreciation was tantamount to protectionism.
The US trade gap with China narrowed to $US226.8 billion in 2009
from a record $US268.0 billion in 2008.
But with the administration of President Barack Obama keen to
expand exports and jobs, the deficit remains a point of friction
between the two powers, which have also been at odds over human
rights, Tibet and US arms sales to Taiwan.
The US Senate bill, a rare show of bipartisan accord, adds to
pressure on Obama, whose administration must decide whether to
label China as a currency manipulator in a semi-annual Treasury
Department report due on April 15.
Many US lawmakers, with strong backing from economists, believe the
Yuan is undervalued by at least 25%, giving Chinese companies an
unfair edge in trade - one seen as more critical now that the US
economy is struggling to recover from the worst downturn since the
1930s.
