The International Resource Journal: China not giving into U.S. currency pressure

China not giving into U.S. currency pressure
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admin on 04 February, 2010 09:09:00
 
President Barack Obama has vowed to address the currency rates with economic
partners, such as China, in effort to get tougher on trade.
A senior Chinese official said today, however, that China would not bow to
pressure from the United States to revalue its currency, which many observers
believe is kept at an artificially low level to give China an unfair advantage
in trades, according to a report in the New York Times.
The official, Ma Zhaoxu, a Foreign Ministry spokesman, said at a regular news
conference here that “wrongful accusations and pressure will not help solve
this issue.” Mr. Ma was reacting to remarks on trade that Mr. Obama made on
Wednesday when he met with Democratic senators in Washington.
Mr. Obama stopped short of saying China manipulates its currency, but his words
on China’s economic policies were harsh — the United States, he said, has
“to make sure our goods are not artificially inflated in price and their goods
are not artificially deflated in price; that puts us at a huge competitive
disadvantage.”
The sharp exchange over China’s currency is only the latest symptom of rising
tensions between Sino-American relations. Internet censorship, cyber attacks
directed at American companies, arms sales to Taiwan and the possible White
House visit with the Dalai lama to Washington have been targeted as points of
conflict. Meanwhile, China has surpassed the United States, becoming now the
world’s top exporter.
Here are some facts about the main points of contention over the yuan:
* The United States complains that China keeps its currency artificially
undervalued, thus unfairly helping exporters.
China has held the yuan in a de facto peg to the dollar since the worsening of
the global financial crisis in mid-2008, meaning its currency has weakened
against those of other trade partners as the value of the dollar has slid over
the past year.
* China has repeatedly said that its currency policy has been an important
source of stability during a period of international financial turmoil,
benefiting both the Chinese and global economic recovery.
* During the most intense phase of the financial crisis, from September 2008 to
March 2009, the dollar peg actually meant that the yuan appreciated strongly
against virtually all other currencies in the world.
* Obama, during a visit to China last November, urged the country to let the
yuan rise in value, but Chinese President Hu Jintao avoided mentioning either
the yuan or the dollar during a joint appearance before the press.
* It's not only the United States pressing China on the yuan. Top European
officials have asked China to let the yuan resume its rise. The International
Monetary Fund and some large developing countries, including Brazil and India,
have also urged Beijing to get a move on.
* Concern about an overheating economy was the catalyst for Beijing's landmark
yuan reform in July 2005, when the central bank revalued the yuan by 2.1
percent, breaking a decade-long dollar peg. It let the yuan rise by a further 19
percent over the next three years before freezing it in place again in mid-2008
when the financial crisis began to hit Chinese exports.
* Analysts polled by Reuters and investors in the key offshore non-deliverable
forward market expect the yuan to resume appreciation in the next 12 months,
gaining about 3 percent. The main driver is expected to be domestic concerns
about rising inflation, not foreign pressure.