Reuters | Oct 15, 2010 | 10:09pm IST
The Obama administration plans to delay a decision on whether to label China a currency manipulator, a move long demanded by many U.S. lawmakers but also a potentially big wrench in an important relationship. A Senate aide told Reuters the Treasury Department would hold off releasing its semi-annual report on the currency practices of U.S. trading partners.
It was not immediately clear how long the delay would be. Industry sources had said they expected the report to be unveiled at 1 p.m. EDT (1700 GMT) on Friday. The Senate aide, speaking on condition he not be named, said he was "hearing they will delay its release."
A desire to look tough on "unfair" trade practices before the U.S. congressional election on Nov. 2, in which Democrats are battling to keep control of Congress, could tempt President Barack Obama to cite China for the first time in 16 years.
But concern about angering the largest holder of U.S. government debt and the need for Chinese support on a host of international issues could mean continuing diplomatic efforts that have resulted in a nearly 2.5 percent rise in the value of China’s yuan against the dollar in recent months. It is a fine line and many observers think Obama will opt to play it safe with Beijing and give it another pass.
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.
BBC News | 5 October 2010 | 10:01 GMT
Eurozone policymakers have urged China to allow its currency, the yuan, to rise in value significantly. The plea came during talks in Brussels with Chinese Prime Minister Wen Jiabao on Tuesday. A top Eurozone minister, Jean-Claude Juncker, called for a "significant and broad-based appreciation" of the yuan.
The US authorities have accused China of keeping the yuan artificially low against other world currencies, making Chinese goods cheaper globally. Mr Juncker, chairperson of the 16-nation Eurozone finance ministers, told a news conference: "China’s real effective exchange rate remains undervalued."
In June China signaled that it would allow more flexibility in the yuan exchange rate. "We welcomed the Chinese decision of 19 June this year to increase the flexibility of the Chinese currency exchange rate, although the potential of these decisions has not been sufficiently exploited," Mr Juncker told reporters.
BBC News | 3 October 2010 | 11:56 GMT
Chinese Premier Wen Jiabao says his country will continue to support both the euro and European government bonds. "I have made clear that China supports a stable euro," he said. He also promised not to cut China’s investment in European bonds, despite the recent crisis, which has weakened the value of many such bonds.
Mr Wen is visiting Greece, the worst hit of the 27-nation European Union. He has promised to buy Greek government bonds the next time they went on sale. China has said it needs to diversify its foreign currency holdings and has bought Spanish government bonds. Later in the week, the Chinese leader will attend an EU-China, where the subject of the yuan is almost certain to come up.
China is accused of keeping its currency artificially low against other world currencies, particularly the dollar- which makes Chinese goods cheaper on world markets and non-Chinese goods more expensive within the country. That argument is hottest in the US, where the House of Representatives has backed legislation that in theory paves the way for trade sanctions on China.
BBC News | 24 September 2010 | 22:34 GMT
A US Congress committee has approved a bill that would place retaliatory trade sanctions on China. It means the House of Representatives – the lower chamber of Congress – will vote on the bill next week. The bill would allow the US to impose import duties on countries that have fundamentally undervalued currencies. To become law, the bill would also need support in the Senate, which is less certain ahead of mid-term Congressional elections due in November.
The US accuses China of holding down the value of its currency, the yuan, in order to give its exports an unfair price advantage. "China’s persistent manipulation is a major distortion in the international marketplace," said Sander Levin, chairperson of the House Ways and Means committee. "[The yuan] has a major impact on American workers and therefore American jobs. That’s what this is really all about."
The draft legislation would require the US Commerce Department to determine the extent to which a currency is undervalued in any case of unfair trade practices brought to it. In August, the department decided to drop a more general investigation into the value of the yuan, despite deciding that China had unfairly subsidised its aluminium exporters.
The Congressional committee’s decision comes a day after US President Barack Obama spent most of a two-hour meeting with Chinese premier Wen Jiabao in New York pressing for a stronger yuan.
Article first published as Implications of China Monetary Policy on Global Imbalances on Blogcritics.
China’s exchange rate policy has been a contentious issue in the global economy particularly between the China and the West. The West has long been criticizing China for keeping Yuan at an exceptionally lower value. They claim China is in an advantage position due its manipulated lower Yuan value, as it makes China exports cheaper. The US President Mr. Obama accused China as currency manipulator in his earlier days of coming to power.
The West says China had pegged Yuan value to the dollar. Yuan value did not change from its value of ¥6.83 a dollar since July 2008. However, China denied the claim on equal tone and resisted pressure from Obama to raise Yuan value. Chinese Premier Hu Jintao said, “Yuan rise would neither balance Sino-US trade nor solve the [US] unemployment problem,” in April during the NSG (nuclear suppliers group) meet in Washington DC.
Many Economists and analysts suggested to China, it would be fair to share the growth of the economy by appreciating the Yuan value, when China recorded 11.9 percent of growth rate in the first quarter. Nevertheless, China did not find any pressing reasons for immediate appreciation of the Yuan value then.
The US Retaliation
The US Treasury Secretary Tim Geithner postponed submitting his report on whether the China was manipulating its currency value or not, to the Congress in April. It was rather a soft approach by the US, hoping China would reciprocate positively by tightening its monetary policy. It was also a revelation that the US was wary of trade war against China. China invested nearly 70% of its vast foreign reserves in the US Treasury bonds.
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.