China rejects US complaints on currency

A Chinese official said on Wednesday China would reform its currency policy gradually and keep the exchange rate stable, rejecting mounting US calls to allow the renminbi to rise more quickly.

Zhong Shan, Chinese vice-commerce minister, in Washington amid US-China trade and political tensions, said changing the exchange rate was not the way to fix a huge bilateral trade gap and could upset the world economy.

“Revaluing the renminbi is not a good recipe for solving problems,” he told the US Chamber of Commerce, according to a transcript obtained by Reuters.

“It is in nobody’s interest – China’s, the US’ or other countries’ – to see big ups in the renminbi or big downs in the dollar,” Mr Zhong said.

US Treasury secretary Timothy Geithner said it was critical for China to allow its currency to rise. “We can’t force them to make that change,” he said in an interview with CNN.

“But it is very important that they let it start to appreciate again. And I think many of them understand that,” he said, according to an advance transcript provided by CNN.

Treasury department officials met late on Wednesday afternoon with Mr Zhong.

“They discussed the importance of fostering global growth, a range of trade issues and economic policies, including exchange rates,” a Treasury spokesman said.

Many US economists estimate China’s currency is undervalued by as much as 40 per cent. They say that gives China an unfair price advantage in international trade, takes jobs away from other countries and adds to global financial distortions.

With the US economy having shed 8.4m jobs since December 2007, lawmakers have focused on China’s currency. Senators are crafting a law that would impose import duties on Chinese goods to offset the low value of its currency.

Sponsors of the bill, Democratic senator Charles Schumer and Republican senator Lindsey Graham, also want the Obama administration to formally label China a currency manipulator in a semi-annual Treasury department report due on April 15.

The administration twice rejected that route in 2009, as did the Bush administration. Wary of straining US-China relations, President Barack Obama has instead pressed Beijing to move to a “more market-oriented exchange rate”.

US House ways and means committee chairman Sander Levin, an influential Democratic party lawmaker, kept up the chorus of criticism of Beijing’s currency policies on Wednesday.

“What seems undisputed … is that China has a persistent economic strategy, a policy, key to which is the pegging of its currency to the dollar at an undervalued rate,” he said.

Mr Levin said he intended to hold “some vigorous discussions this week” with Treasury officials on the currency issue.

Declaring China a currency manipulator would require Mr Geithner to hold talks with China, bilaterally or at the International Monetary Fund. The IMF called the renminbi “substantially undervalued” on March 1.

Niall Ferguson, a history and business professor at Harvard University, told Mr Levin’s hearing that failing to name China as a manipulator will make the United States “look like the wimps of the western world”.

Many economists say a revaluation of the renminbi would not bring back US jobs because many of the labour-intensive products Americans buy from China have not been made in the United States for decades.

Some warn against moves that would trigger a trade war with China, which holds $889bnof US government bonds and whose help is needed to tame the nuclear ambitions of Iran.

Joseph Brusuelas, chief economist at Brusuelas Analytics, said in a research report that he saw “little question regarding whether Beijing targets the level of its currency”. But he argues against naming China a manipulator.

“Such a finding will exacerbate economic tensions between the US and China and could push the Obama administration to adopt a counterproductive set of policies that would endanger the nascent global economic recovery,” he wrote.

Mr Ferguson urged naming China a manipulator but, citing the US tariffs that helped trigger the 1930s Great Depression, added: “I do not think this is a good moment to threaten or impose retaliatory tariffs against China.”

Mr Zhong warned US business leaders that a stronger renminbi might not be a solution to US economic problems.

“A dip in the value of the dollar will undoubtedly bring great repercussions to the global financial system and the world economy,” he told the US Chamber of Commerce.

“The right way to reach trade balance between China and the US should be expanding exports from the US to China, rather than limiting China’s exports to the US,” Mr Zhong added.

US exports to China were about $70bnin 2009, unchanged from 2008. In a global economic slowdown, China was the third-biggest market for US exporters and it remains the fastest-growing one.

But US business leaders increasingly complain they are hitting a protectionist wall in China as a result of government policies favouring domestic industries and that Beijing is increasing state involvement in the economy.

“Regrettably, China is moving in a direction that is inconsistent with international best practice in developing an innovative economy,” said Myron Brilliant, senior vice-president of the US Chamber of Commerce.

China’s policies are undermining business leaders who have long defended Beijing from US protectionist pressures.

“The ongoing policy approaches by China are eroding the support of their long-standing advocates in the United States, diminishing the many good arguments we have used historically in support of this relationship,” Mr Brilliant said.

China and the United States have been at odds throughout 2010 over issues such as Google’s decision to defy Chinese internet censorship, Tibet, US weapons sales to Taiwan, and sanctions against Iran’s nuclear programme.

Mr Zhong also visited the US Treasury department, Commerce department and the trade representative’s office. It was not clear whether he would meet lawmakers during his two-day visit.

A Commerce department official said US officials who hosted Mr Zhong discussed trade remedy issues, anti-dumping and countervailing duties.

“We also took the opportunity to raise our broader trade-related concerns, such as indigenous innovation,” she said, referring to Beijing’s buy-Chinese directives that US businesses in China cite as a major and growing trade barrier.