Beijing yesterday stoutly defended its currency policy, denying it manipulates the yuan and rejecting the argument a stronger exchange rate would erase the US trade deficit with China.
At separate news briefings, a Chinese Foreign Ministry spokeswoman and two government economists held out the prospect of the yuan’s being allowed to resume its rise after a 20-month pause, but said Beijing would proceed with caution and on its own terms.
“We don’t want to see our exchange rate kept unchanged,” said Zhang Yansheng (張延生), director-general of the Institute for International Economic Research, a think tank under the National Development and Reform Commission, a powerful planning agency.
China has repegged the yuan near 6.83 per US dollar since July 2008 to help its exporters weather the global credit crunch. In the preceding three years it had let the yuan gradually climb 21 percent against the dollar.
US Treasury Secretary Tim Geithner said on Saturday his department would delay a report due by April 15 that could have labeled China a “currency manipulator,” a finding that would have been sure to draw China’s wrath.
Zhang welcomed the announcement from Washington as “a good thing,” but said currency reform would take time.
Making the yuan more flexible was a challenging task, not least because of a lack of hedging instruments in China and domestic companies’ lack of experience in handling a fluctuating exchange rate, the economist said.
With US unemployment near 10 percent, US President Barack Obama is under pressure from Congress to persuade Beijing to allow the yuan, to appreciate.
Chinese Foreign Ministry spokeswoman Jiang Yu (姜瑜) said China never manipulates the yuan and called for trade differences to be settled through dialogue.
“The [yuan] exchange rate is not the main reason behind the US-China trade deficit,” Jiang told a regular briefing. “So naturally, [yuan] appreciation is not the solution to rebalance Sino-US trade.”
Financial markets expect Beijing to permit the yuan to resume its rise some time this year in order to cap inflation and help promote domestic demand.
One possibility is that a renewed rise in the exchange rate will be accompanied by a widening of the yuan’s trading band.
The yuan now may move no more than 0.5 percent, up or down, from a central rate fixed every day by the central bank.
Ba Shusong (巴曙松), deputy director-general of the Financial Research Institute, sketched out this scenario but said China should be very careful about the timing of any shift.
Ba, whose institute is part of the Development Research Center, the Chinese Cabinet’s think tank, also said a rise in the yuan would not be decisive for the imbalance in trade between China and the US.
Indeed, Ba said the US deficit with China, which Washington put at US$227 billion last year, could even grow if the yuan strengthened — just as it did between mid-2005 and mid-2008 in spite of the yuan’s steady appreciation over that time.
Jiang said China would indeed keep perfecting its “managed floating exchange rate” but would stick to the three principles it has always followed: Any change must be at Beijing’s initiative, the manner of the change must be controlled, and it must be gradual.
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