Differences remain over yuan-dollar rate

PUBLISHED : Wednesday, 18 November, 2009, 12:00am
UPDATED : Wednesday, 18 November, 2009, 12:00am

President Hu Jintao urged the United States to oppose trade protectionism, and his counterpart, Barack Obama, at their summit yesterday nudged China to allow the yuan to appreciate.

The two also agreed to work to ease trade and economic friction between the two giants, though differences on the thorny currency issue remained unresolved.

In a briefing after the summit, Hu said both sides had reiterated their desire to continue talks and co-operation on macroeconomic and financial policies, and to resolve economic and trade friction. But he highlighted Chinese concern over increasing US protectionism.

'I stressed to President Obama that under the current circumstances, our two countries need to oppose every type of trade protectionism even more strongly,' Hu said with Obama at his side.

Trade disputes between China and the US have heated up in recent months, with the US having brought three cases against China before the World Trade Organisation and China three against the US.

Hu made no mention of the yuan after meeting Obama, and the US leader said only that he was pleased with China's commitment to moving towards a more market-oriented exchange rate.

'We agreed to advance ... a strategy where America saves more, spends less, reduces our long-term debt and where China makes adjustments across a broad range of policies to rebalance its economy and spur domestic demand,' Obama said.

'I was pleased to note the Chinese commitment ... to move toward a more market-oriented exchange rate over time.'

In a separate briefing, the Chinese vice-minister of foreign affairs, He Yafei , acknowledged that both state heads had exchanged views on the yuan issue.

'In China's efforts to tackle the crisis, we have maintained the stability of the exchange rate, which is a contribution not only to the international efforts to address the crisis, but to the stability of the world financial markets,' He said.

Few traders expect any near-term changes in Beijing's foreign-exchange policy.

Last weekend, the US and China sparred over exchange rates at a meeting of Asia-Pacific leaders, a move that quashed speculation Beijing may allow some further yuan appreciation in co-ordination with Obama's first trip to China.

Commenting on the summit, Jing Ulrich, chairwoman of JPMorgan's China Equities and Commodities, said China's policymakers had maintained a stable exchange rate to allow domestic manufacturers and exporters to adjust to market conditions.

She said Beijing was unlikely to let the yuan strengthen amid a slowdown in exports in the near future.

US manufacturers say Beijing deliberately keeps its currency undervalued against the US dollar to give its companies an unfair advantage. The trade deficit with China is the widest the United States has with any trading partner, and it jumped to a record high of US$268 billion last year.

The yuan gradually rose 21 per cent in a crawling peg to the dollar between July 2005 and July last year. Since summer last year, as the financial crisis gathered force, the currency has been virtually repegged at about 6.83 yuan to the dollar. After the summit, a joint statement said the US and China had pledged to rebalance each other's economies and move in tandem on forward-looking monetary policies for a strong and durable global economic recovery.

'China will continue to implement the policies to adjust economic structure, raise household incomes, expand domestic demand to increase contribution of consumption to GDP [gross domestic product] growth and reform its social-security system,' said the statement.

The United States, in its turn, will take measures to increase national saving as a share of the GDP and promote sustainable non-inflationary growth.


US manufacturers claim China's currency policy gives it an unfair advantage

The US trade deficit, in US dollars, with China last year was: $268b