No room for progress on yuan appreciation
China is a currency manipulator and, unless its officials change their wicked ways, we will take them to task: that was the message from senator Barack Obama on the 2008 presidential campaign trail. Back then, the exchange rate was 6.83 yuan to the US dollar. Almost two years and one global financial crisis later, the exchange rate is still 6.83 yuan to the dollar, and President Obama and his team have fallen strangely silent.
That silence may mean Beijing and Washington have reached an informal understanding. Back in April, the US Treasury decided to delay publication of a report to Congress on international exchange rates - a report that might have officially designated China a currency manipulator.
That decision came shortly after a visit to the US capital by Zhong Shan, China's deputy commerce minister. Whispers from Washington suggest that, though no concrete assurances were given, Zhong's visit did at least result in a meeting of minds. The US would dial down the rhetoric on the exchange rate and China would proceed with appreciation, at its own pace, but within a reasonable time frame.
For many in Washington, a reasonable time frame meant before the next meeting of the strategic economic dialogue - the annual China-US talk fest set to take place in Beijing today and tomorrow. But expectations of an early resumption of appreciation appear increasingly misplaced.
Why the delay? Look no further than the European sovereign debt crisis. The European Union might have belatedly mounted its white horse to ride to the rescue of the Greek damsel in distress. But the episode has rung alarm bells in Beijing, suggesting that the global financial crisis has yet to run its course and the time for the resumption of yuan appreciation is not yet right.
If a resumption of appreciation in advance of the meeting was too much to hope for, maybe a little table thumping in the meeting itself will do the trick?
Probably not. On the US side, it is the State Department that's calling the shots, and that means a focus on the strategic, not the economic, half of the dialogue. The sinking of a South Korean navy ship, with the deaths of 46 sailors on board, has raised the temperature on North Korea. With an official investigation placing the blame squarely at the door of Pyongyang, shaping a response has risen to the top of the agenda. And with the focus of attention elsewhere, there is little hope of progress on the exchange rate; officials on both sides have begun to talk the issue down.
A sinking economy in Greece and a sunk ship in South Korea might be enough to scupper hopes of a move on the exchange rate at this meeting. But excuses will do little to appease an increasingly vocal domestic lobby in the US. Trade unions, industrial interests and a Congress spoiling for a fight might have bought into the Treasury's softly-softly approach in the run-up to the dialogue. But continued inaction may well use up scarce supplies of patience.
Tom Orlik is the China economist for Stone & McCarthy Research Associates, based in Beijing