BBC News | 8 October 2010 | 23:11 GMT
China’s central bank governor Zhou Xiaochuan has come out fighting in response to mounting pressure to allow the country’s currency to rise. China will move to a market-determined exchange rate, but gradually. He said, "There will be no shock therapy". Mr Zhou was speaking in a BBC World News debate at the annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington.
Tensions have been rising for months over China’s currency policy. In the last few days, the phrase "currency war" has been used. The IMF managing director Dominique Strauss-Kahn has used it, although in the BBC debate he said "war" was probably too strong a word.
China holds down the value of its currency, the yuan or renminbi, by intervening in the markets, buying dollars and other currencies. To critics, the result is an artificially low yuan, which gives an unfair advantage to Chinese industry. Mr Strauss-Kahn has some sympathy for that complaint. In the BBC debate, he said the Chinese currency is undervalued. This is part of a long-standing IMF view that the global economy is unbalanced.
China, and some other countries, save and export too much. The reverse is true of the US and others. Changing China’s exchange would contribute to rebalancing the world economy by making China’s exports less competitive. But nobody at the debate thought a currency reform would be a "silver bullet" that would fix all the problems. The US and others need to take their own steps to save more.
Reuters | Aug 29, 2010 | 9:04am IST
The European Union thinks China has made only limited progress in allowing its yuan currency to move more rapidly, and swifter action would help safeguard a fragile economic recovery, according to a draft G20 document obtained by Reuters on Saturday. The document outlines EU positions ahead of a Group of 20 deputy finance leaders meeting in Kwangju, South Korea, Sept. 4-5. South Korea will host a G20 leaders’ summit in November. The 13-page document addresses issues including the economic outlook, governance of the International Monetary Fund, financial regulatory reform, and climate change. The draft was undated, and it was not clear whether EU officials had approved it.
The EU sounded somewhat upbeat on Europe’s economic prospects, but raised concerns about growing risks in the United States and Japan, the document shows. The draft also reflects some frustration with China’s slow progress in allowing its currency to appreciate. China announced in June that it would loosen its grip on the tightly managed yuan, which the United States and Europe say Beijing keeps artificially low to support exports. "A vigorous implementation of this policy is now necessary," the draft statement said. "Unfortunately, so far, only limited progress has been made." It said a stronger yuan would be in Beijing’s best interest because it would help prevent the Chinese economy from overheating and creating asset price bubbles.
Reuters | Monday, 12 July 2010 | 12:02 GMT
China’s frothy property market may have peaked after a government clampdown on speculators, new data has shown. Property prices across 70 cities fell 0.1% in June compared with May – the first monthly fall since February 2009. Meanwhile, separate trade figures released at the weekend showed exports surging, but imports lagging. The data paints a mixed picture for the Chinese economy, which some economists and investors fear may suffer a sharp slowdown later in the year.
In April, the Chinese government introduced a series of new regulatory restrictions on the housing market that sought to restrict speculative buying. These included higher down-payments on house purchases, stricter lending rules for property developers, and limits on the ability of investors to buy more than one home. Many economists, investors and policymakers – both inside and outside China – worry that Chinese real estate may be experiencing a bubble brought on by excessively low interest rates, which has fuelled speculators. Despite the monthly fall in June, property prices across China still remained 11.4% higher than a year ago. Financial markets are now assessing whether Beijing will successfully pull off a soft landing in housing prices, or whether the Chinese property market will now deflate in the same way the US market has done since 2007.
The property market restrictions are just one dimension of a general move by Beijing to unwind a package of stimulus measures that helped China weather the global recession, in the face of accelerating inflation. Data released on Monday by the Chinese central bank showed a continued slowdown in bank lending throughout the economy. Net new lending – which is tightly regulated in China – fell to 603bn yuan ($89bn; £59bn) in June, down 5.6% from May, and down more than half compared with a year ago. The Chinese government encouraged an
Reuters | Sat Jul 3, 2010 | 10:32pm IST
Now that China is staying true to its word and letting the yuan trade a bit more freely, analysts and investors outside the mainland may not be prepared for one potential outcome: a yuan drop. China is showing a determination to let the yuan be more volatile against the dollar within its daily 0.5 percent trading band and go with the market flow, contrary to some expectations for another steady rise as happened between 2005 and 2008. That means there are no guarantees that the yuan will appreciate against the dollar over time, and Beijing is set to stick firmly to its position on yuan flexibility no matter how much it disappoints critics — most prominently U.S. lawmakers. The fundamentals arguing for substantial yuan appreciation have changed since the financial crisis: China is running smaller trade surpluses, and economists see the potential for the shrinking current account surpluses to turn into deficits in coming years. As a result, the basis for steady but slow yuan appreciation versus the dollar is not as strong as five years ago — one reason why Beijing keeps emphasising flexibility in its pushing forward the reform of its currency system.
"China’s new yuan policy lays emphasis on a quick response to changes in economic and market conditions, with no preset levels for yuan appreciation either in the short term or long term," said Chen Lu, chief economist at Haitong Securities in Shanghai. The People’s Bank of China has matched its words with deeds by allowing greater yuan volatility since the June 19 announcement and subsequent clarification that flexibility still means that yuan moves must be gradual and controllable. The yuan has moved in an average daily range of more than 100 pips since its depegging, far above the 50 pips that dealers say would allow banks to engage in proprietary trading intraday. This compared with a daily movement of only a few pips during the two years when the currency was pegged to the dollar. Banks are just starting to do more day-to-day speculation, adding to liquidity in the local spot market. Before the depegging, the limited daily swings meant all trading was almost a pure reflection of supply and demand, with the PBOC keeping the market in check. Realised volatility in dollar/yuan has jumped as spot has started swinging more sharply within the daily trading band on the official CFETS platform.
Reuters | Sat Jun 5, 2010 | 5:54pm IST
China’s currency policies were spared a specific mention in the ‘Group of 20’ communique on Saturday, but U.S. Treasury Secretary Timothy Geithner and the IMF kept up pressure for a stronger yuan. Both in a letter to G20 colleagues and comments after the conclusion of their meetings here, Geithner characterized a more flexible yuan exchange rate as a central and necessary component of rebalancing the global economy. He said China had ambitious reform plans aimed at strengthening domestic consumption so it could rely less on exports for its growth. "A necessary part of that process of reform, and the Chinese leaders have acknowledged this and recommitted to this, is to resume what they call the reform of their exchange rate mechanism," Geithner told a news conference in South Korea’s main port city.
International Monetary Fund Managing Director Dominique Strauss-Kahn joined Geithner in pointing out that China’s currency, also known as the renminbi, was too weak. "The IMF still believes that the renminbi is still substantially undervalued…even a revaluation of 20-25 percent doesn’t solve all the imbalances and you have more to do, so it’s only part of the problem and you still have other imbalances, Strauss-Kahn told reporters. After allowing the Yuan to strengthen gradually over three years from about 8.28 to the dollar in July 2005 to 6.83 in July 2008, the Chinese authorities virtually pegged it to the dollar in 2008 to help exporters weather the global financial storm. Beijing has resisted pressure from manufacturers and lawmakers in Western countries to unshackle the yuan and let it appreciate in line with China’s growing economic strength.
Reuters | Mon May 24, 2010 | 3:05pm IST
China struck a conciliatory note in talks with the United States on Monday by vowing to spur domestic demand and keeping a guarded opening to exchange rate reform, which the Obama administration says is needed to rebalance the global economy. The United States treaded softly on the subject and welcomed Beijing’s long-standing pledge to reform the yuan as the two sides opened their second Strategic and Economic Dialogue. But both countries also made clear that a stronger Chinese currency was not enough by itself to narrow the whopping U.S. bilateral trade deficit that has fuelled tensions between them at a time when the global economic recovery remains fragile. While Chinese President Hu Jintao broke no new ground on the yuan dispute, he set an amicable tone for the two days of talks during which the world’s biggest and third-biggest economies will seek to steady their relations.
"China will continue to steadily advance reform of the renminbi exchange rate formation mechanism following the principles of being independent, controllable and gradual," he said. The renminbi is another name for the yuan. Hu said his government wanted to expand domestic demand to create more balanced growth, something that Washington — worried about its yawning trade deficit with China — has also advocated. U.S. Treasury Secretary Timothy Geithner said the Chinese government was moving in the right direction on the yuan, which has been effectively pegged to the dollar since the global financial crisis worsened in mid-2008. "We welcome the fact that China’s leaders have recognized that reform of the exchange rate is an important part of their broader reform agenda," he said. Trying to press the case that appreciation would be in China’s own interest, Geithner said that a more market-driven exchange rate would help suppress inflation while also driving private firms to move up the value chain.
Reuters | Mon Apr 5, 2010 | 5:25pm IST
US Treasury Secretary Timothy Geithner will try to strengthen bilateral ties with India during talks in New Delhi this week, but his visit may be overshadowed by Washington’s tense relationship with China. Both the United States and India will be simultaneously pushing trade and foreign exchange agendas with China, as they discuss cooperation on infrastructure development and financial markets. Geithner on Saturday delayed an April 15 report to Congress on whether China manipulates its yuan currency, pledging to work instead with Group of 20 members – India and China included — to persuade Beijing to de-peg its yuan from the dollar. Foreign Minister S.M. Krishna will be in Beijing for talks this week on a range of issues, smoothing out trade flows and reducing non-tariff trade barriers to shrink a $16 billion trade deficit with China.
"There is one potentially big issue of common interest between the U.S. and India – the Chinese exchange rate," said Arvind Subramanian, senior fellow at the Peterson Institute for International Economics, a Washington think tank. "China’s undervalued exchange rate affects emerging market economies like India even more than it does the United States," he said. Subramanian added that India might be persuaded to support a broad-based effort aimed at currency rebalancing in a large, global forum like the G20 grouping of wealthy and big emerging economies. China has intervened in currency markets to keep the yuan steady against the dollar since July 2008 at a rate that critics say effectively provides a lucrative subsidy to Chinese exports. India maintains a floating exchange rate policy.