BBC NEWS | 2010/04/13 | 10:21:23 GMT
Chinese President Hu Jintao has resisted pressure from President Obama to raise the value of the Chinese yuan. He told Mr Obama that it would "neither balance Sino-US trade nor solve the [US] unemployment problem", Chinese official news agency Xinhua reported. However, Mr Hu indicated that the Chinese were preparing to change their policy on the yuan in their own time. The Chinese and US presidents were meeting at the sidelines of a 47-nation nuclear summit in Washington DC. According to Xinhua, Mr Hu said that detailed measures for reform should be considered in the context of the world’s economic situation, as well as China’s. China News Service reported that Hu said China "is firmly committed to the direction of reforming the… exchange rate regime. This is based on the needs of China’s own economic development." However, he added that "outside pressures will not advance [reform]".
For his part, Mr Obama called on his counterpart to switch to a more "market oriented" exchange rate, according to senior White House official Jeff Bader. China has pegged its currency to the dollar since 2008 in response to market volatility during and after the financial crisis. Market reaction to the comments was fairly muted, but seemed to interpret Mr Hu’s comments as reducing the immediate prospects of any rise in the yuan’s value. Other Asian currencies such as the Malaysian ringgit and Korean won, lost between 0.5% to 1% against the dollar in early trading, ending strong rallies recorded during the past two months. Markets had previously been speculating that if the yuan were allowed to appreciate, this would lead to similar rises in the currencies of other Asian countries that compete with China for exports to the US and Europe.
The meeting follows widespread speculation over the possibility of a trade war this year between the two nations. Many economists, including Nobel prize winner Paul Krugman, have criticised the Chinese for pegging their currency to the dollar. They say this gives the Chinese an unfair advantage, by making Chinese exports artificially cheap, and this acts as a drag on the rest of the world economy. The meeting between the two presidents follows a hasty visit to China by US Treasury Secretary Tim Geithner on 8 April, and a decision on 3 April to postpone an important Treasury report. That report, which was due to be delivered this month to Congress, would have stated whether the Treasury Department deemed China to be a "currency manipulator".
This would have opened the way for Congress to impose trade sanctions on China, a move advocated by many congressmen as well as Mr Krugman. Meanwhile, the Chinese commerce ministry has introduced a duty of up to 64.8% on imports of US electrical steel, and 24% on those from Russia, accusing the two countries of selling the steel at abnormally low prices. The move follows a decision by the US government to impose an import tax on Chinese pipes.