House panel set to approve China currency bill
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China duties to hit US chicken imports
China's government says it will impose import duties on US chicken products it says are being unfairly dumped on the Chinese market.
From Monday, duties of up to 105.4% will be imposed on US chicken imports for the next five years, the China's ministry of commerce said in statement.
It said an investigation had concluded that US imports were hurting the domestic chicken industry.
The move is the latest in a growing trade dispute between China and the US.
On Friday a US Congress committee approved a bill allowing tariffs to be imposed on imports from currency manipulating countries.
The bill is aimed at China, which is accused of keeping the yuan artificially low to help its exporters.
In its statement the ministry of commerce defended its decision to impose the latest tariffs, saying there was a "causal relationship" between the "US dumping of broiler products and the losses suffered by domestic business".
The tariffs are likely to have a significant impact on US chicken exporters, who rely on sales of chicken feet and wings to China.
Some US companies will pay lower tariffs because they co-operated with China's investigation into the industry, the commerce department said.
These include Tyson Foods, Keystone Foods and Pilgrim's Pride Corporation.
But these tariffs will still be higher than the preliminary tariff of 43.1% announced by the Chinese government in February.
China's government says it will impose import duties on US chicken products it says are being unfairly dumped on the Chinese market.
From Monday, duties of up to 105.4% will be imposed on US chicken imports for the next five years, the China's ministry of commerce said in statement.
It said an investigation had concluded that US imports were hurting the domestic chicken industry.
The move is the latest in a growing trade dispute between China and the US.
On Friday a US Congress committee approved a bill allowing tariffs to be imposed on imports from currency manipulating countries.
The bill is aimed at China, which is accused of keeping the yuan artificially low to help its exporters.
In its statement the ministry of commerce defended its decision to impose the latest tariffs, saying there was a "causal relationship" between the "US dumping of broiler products and the losses suffered by domestic business".
The tariffs are likely to have a significant impact on US chicken exporters, who rely on sales of chicken feet and wings to China.
Some US companies will pay lower tariffs because they co-operated with China's investigation into the industry, the commerce department said.
These include Tyson Foods, Keystone Foods and Pilgrim's Pride Corporation.
But these tariffs will still be higher than the preliminary tariff of 43.1% announced by the Chinese government in February.
China,Japan,America
Last week Japan's minister of finance declared that he and his colleagues wanted a discussion with China about the latter's purchases of Japanese bonds, to "examine its intention" — diplomat-speak for "Stop it right now." The news made me want to bang my head against the wall in frustration.You see, senior American policy figures have repeatedly balked at doing anything about Chinese currency manipulation, at least in part out of fear that the Chinese would stop buying our bonds. Yet in the current environment, Chinese purchases of our bonds don't help us — they hurt us. The Japanese understand that. Why don't we?
Some background: If discussion of Chinese currency policy seems confusing, it's only because many people don't want to face up to the stark, simple reality — namely, that China is deliberately keeping its currency artificially weak.
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China's trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.
And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
So what should we be doing? U.S. officials have tried to reason with their Chinese counterparts, arguing that a stronger currency would be in China's own interest. They're right about that: an undervalued currency promotes inflation, erodes the real wages of Chinese workers and squanders Chinese resources. But while currency manipulation is bad for China as a whole, it's good for politically influential Chinese companies — many of them state-owned. And so the currency manipulation goes on.
Time and again, U.S. officials have announced progress on the currency issue; each time, it turns out that they've been had. Back in June, Timothy Geithner, the Treasury secretary, praised China's announcement that it would move to a more flexible exchange rate. Since then, the renminbi has risen a grand total of 1, that's right, 1 percent against the dollar — with much of the rise taking place in just the past few days, ahead of planned Congressional hearings on the currency issue. And since the dollar has fallen against other major currencies, China's artificial cost advantage has actually increased.
Clearly, nothing will happen until or unless the United States shows that it's willing to do what it normally does when another country subsidizes its exports: impose a temporary tariff that offsets the subsidy. So why has such action never been on the table?
One answer, as I've already suggested, is fear of what would happen if the Chinese stopped buying American bonds. But this fear is completely misplaced: in a world awash with excess savings, we don't need China's money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell.
It's true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive. Ask the Japanese, who want China to stop buying their bonds because those purchases are driving up the yen.
Aside from unjustified financial fears, there's a more sinister cause of U.S. passivity: business fear of Chinese retaliation.
Consider a related issue: the clearly illegal subsidies China provides to its clean-energy industry. These subsidies should have led to a formal complaint from American businesses; in fact, the only organization willing to file a complaint was the steelworkers union. Why? As The Times reported, "multinational companies and trade associations in the clean energy business, as in many other industries, have been wary of filing trade cases, fearing Chinese officials' reputation for retaliating against joint ventures in their country and potentially denying market access to any company that takes sides against China."
Similar intimidation has surely helped discourage action on the currency front. So this is a good time to remember that what's good for multinational companies is often bad for America, especially its workers.
So here's the question: Will U.S. policy makers let themselves be spooked by financial phantoms and bullied by business intimidation? Will they continue to do nothing in the face of policies that benefit Chinese special interests at the expense of both Chinese and American workers? Or will they finally, finally act? Stay tuned.
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SHASH2K2
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China issues US yuan bill warning
China has warned that a US bill aimed at penalising it for currency manipulation could "harm relations" between the two economic giants.
A Chinese foreign ministry spokesperson said China was "resolutely opposed" to the bill, which treats undervalued currencies as illegal export subsidies.
China is accused of keeping the yuan artificially low to help its exporters.
The bill has been voted through by the US House of Representatives, but still needs Senate and presidential approval.
"Using the [yuan] exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy," warned spokeswoman Jiang Yu, speaking at a regular press briefing.
She also urged US congressmen to "resist protectionism".
Trade rules
If it becomes law, the bill will allow the US Commerce Department to impose tariffs on Chinese imports, if it deems the yuan to be "fundamentally undervalued".
Those tariffs would also need the approval of the World Trade Organization (WTO).
But speaking to China's state-run news agency, Yao Jian, a spokesman for China's Ministry of Commerce, said US attempts to use the exchange rate to justify trade restrictions would violate WTO rules.
He also warned that the US had as much to lose from a trade war as China, with China is now the US's fastest-growing export market.
The Chinese government also argues that its trade surplus with the US does not demonstrate that the current yuan-dollar exchange rate gives it an unfair advantage, pointing out that it has similar trade surpluses with other Asian countries.
Even if the bill is not finally approved, it is likely to increase pressure on both the US and China to resolve the long-running disagreement over the yuan.
On Wednesday, China's central bank promised to increase flexibility in the exchange rate, three months after ending its policy of pegging the yuan to the dollar.
But there has been frustration among business groups and politicians in the US that the yuan has risen by only 2% in that time.
Analysts estimate the yuan is currently undervalued by up to 25% against the US dollar.
China has warned that a US bill aimed at penalising it for currency manipulation could "harm relations" between the two economic giants.
A Chinese foreign ministry spokesperson said China was "resolutely opposed" to the bill, which treats undervalued currencies as illegal export subsidies.
China is accused of keeping the yuan artificially low to help its exporters.
The bill has been voted through by the US House of Representatives, but still needs Senate and presidential approval.
"Using the [yuan] exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy," warned spokeswoman Jiang Yu, speaking at a regular press briefing.
She also urged US congressmen to "resist protectionism".
Trade rules
If it becomes law, the bill will allow the US Commerce Department to impose tariffs on Chinese imports, if it deems the yuan to be "fundamentally undervalued".
Those tariffs would also need the approval of the World Trade Organization (WTO).
But speaking to China's state-run news agency, Yao Jian, a spokesman for China's Ministry of Commerce, said US attempts to use the exchange rate to justify trade restrictions would violate WTO rules.
He also warned that the US had as much to lose from a trade war as China, with China is now the US's fastest-growing export market.
The Chinese government also argues that its trade surplus with the US does not demonstrate that the current yuan-dollar exchange rate gives it an unfair advantage, pointing out that it has similar trade surpluses with other Asian countries.
Even if the bill is not finally approved, it is likely to increase pressure on both the US and China to resolve the long-running disagreement over the yuan.
On Wednesday, China's central bank promised to increase flexibility in the exchange rate, three months after ending its policy of pegging the yuan to the dollar.
But there has been frustration among business groups and politicians in the US that the yuan has risen by only 2% in that time.
Analysts estimate the yuan is currently undervalued by up to 25% against the US dollar.
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More Countries Adopt China's Tactics on Currency
WASHINGTON — As the Obama administration escalates its battle with Chinese leaders over the artificially low value of China's currency, a growing number of countries are retreating from some free-market rules that have guided international trade in recent decades and have started playing by Chinese rules.
Japan and Brazil have taken measures recently to devalue their currencies, or at least prevent them from appreciating further against the Chinese currency, the renminbi. The House of Representatives last week overwhelmingly passed the first legislation to allow the United States to slap huge tariffs on Chinese goods unless China allows the renminbi to appreciate, another mechanism for making Chinese goods more expensive here and American exports more competitive in China.
In Europe, policy makers have begun to fret that, despite the debt crisis that sent investors fleeing just a few months ago, the euro has now risen sharply again against the dollar, potentially weakening exports by making European goods more expensive. Those exports have been one of Europe's few sources of growth, and President Nicolas Sarkozy of France, who will take over leadership of the Group of 20 biggest economies, said over the weekend that he was pushing for a new system of coordinating global currencies as wealthy nations did in the 1970s, before a free market orthodoxy took hold.
It is unclear if the result will be a "currency war," as Brazil's finance minister recently warned, or if these are just warning shots, fired to force Beijing's leadership to make good on years of promises that it would allow the value of its currency to appreciate.
But that question is so in the air that Treasury Secretary Timothy F. Geithner felt compelled last week to try to dampen the fear. "We're not going to have a trade war," he said at a forum sponsored by The Atlantic. "We're not going to have currency wars." He acknowledged that the only way to break the cycle was for a country "to decide it is in its own interest to allow its currency to appreciate in response to market forces," and he said he believed that a "substantial fraction of the Chinese leadership" now understands the need to allow the currency to rise in value.
But it is unclear how far the Chinese are willing to go, since a more expensive currency means more expensive exports and a possible loss of jobs. "It's a tradeoff for the Chinese leadership," said one senior United States official who has talked at length to China's top officials. "They are under pressure from governors and mayors who fear unemployment in China's manufacturing territory, exactly what we are struggling with."
But the fact remains that the rest of the world is beginning to mimic the technique China has perfected: manipulating currencies for national advantage, while resisting political pressure from trading partners.
Some economists argue that the standoff over China's currency could herald a new era of protectionism reminiscent of the 1920s and '30s, which they say they fear could undermine trade and make a weak recovery even weaker. But others argue that it was the free-market consensus of the 1980s and '90s that weakened American competitiveness and was exploited by rising powers like China, calling for a more assertive policy to protect jobs, increase exports and keep industry at home.
"Everyone's playing beggar-thy-neighbor games, willingly or unwillingly," Michael Pettis, a Peking University professor and economist at the Carnegie Endowment for International Peace, said in an interview. "This is very similar to what happened in the '30s, when the collapse in Europe's ability to finance itself also meant a collapse in its trade deficit, and the world rushed around trying to find a new equilibrium in which every country tried to grab a larger share of the dwindling global demand."
Of course, many countries have manipulated their currencies before — the United States reached a political accord with Japan in the Reagan administration to do exactly that, in an effort to reduce a yawning trade deficit. And for decades, despite global rules prohibiting the practice, countries have sought to help their industries by providing subsidies to companies, as Europe did for years with Airbus, its competitor to Boeing.
But many around the world fear getting trampled as the United States and the Chinese battle each other. Japan intervened in the currency markets recently for the first time in six years, after accusing China of driving the yen up to a 15-year high, in part by buying Japanese debt. But it was a short-term move, many Japanese experts fear. "Japan is in a sense losing out in this competitive devaluation war" through inaction, said Kazuo Ueda, a professor of finance at the University of Tokyo, and a former member of the policy board of Japan's central bank.
Brazil took similar action and vowed last week to take whatever action it needs to prevent its currency from appreciating. Its finance minister, Guido Mantega, said in an interview that the actions by developed countries, including the United States, to keep interest rates at record lows, one way of devaluing a currency, was a "strategy from the past" that was threatening the economy of Brazil and other "dynamic" emerging markets.
"This is a kind of desperate action taken by countries to try to activate their economies," Mr. Mantega said. "Since they have not been able to activate their own internal markets, the way out becomes exports. So developed countries work on devaluing their currency in order to become competitive in the few dynamic markets in the world." Most Western governments, and many economists, place the blame for currency frictions on China, which has refused to let the renminbi trade at anywhere near its real value. Moreover, China has subsidized its exports with artificially low interest rates that shift money from consumers' bank deposits into cheap loans to businesses.
These tactics are nothing new, especially among the emerging economies of Asia. But experts say the sheer size of the Chinese economy means that its currency policies have global effects.
Not surprisingly, the Chinese see the problem differently. The Chinese press is filled with articles arguing that Americans do not appreciate China's efforts on their behalf. While other nations' currencies devalued against the dollar in the 2008 financial crisis, some economists note, the renminbi did not. And while Chinese exports may be artificially cheap, the effect has been to give American shoppers bargains at the expense of Chinese consumers.
"Nobody thinks about that," Shen Minggao, the chief China economist for Citibank, said in a telephone interview from Hong Kong. "Should China think about the welfare of Chinese consumers, not U.S. consumers?"
China could solve much of the problem by shifting to an economy driven by domestic consumption instead of profits from exports. And in principle, Chinese experts agree.
But China's progress toward that goal has been glacial. Since June, when the government said it would move the renminbi closer to its real value, the currency has gained about 1 percent. Most experts say the real value is 15 percent to 20 percent higher.
A variety of economic and political factors limit China's flexibility, said Li Daokui, who directs Tsinghua University's Center for China in the World Economy. Dr. Li sits on the government's Monetary Policy Committee, which advises China's central bank, and stressed he was not speaking for the government. If China lets its renminbi gain value too quickly, he said, that could make exports too expensive and collapse an entire sector of the economy. That would spike unemployment and risk social unrest, which Chinese leaders are committed to avoiding.
Dr. Li said that a "mild appreciation" of the renminbi was needed, but that ordinary Chinese need to be prepared for even that small step. Otherwise, he said, "it's counterproductive, because many people believe there's a conspiracy to keep the Chinese economy from growing."
WASHINGTON — As the Obama administration escalates its battle with Chinese leaders over the artificially low value of China's currency, a growing number of countries are retreating from some free-market rules that have guided international trade in recent decades and have started playing by Chinese rules.
Japan and Brazil have taken measures recently to devalue their currencies, or at least prevent them from appreciating further against the Chinese currency, the renminbi. The House of Representatives last week overwhelmingly passed the first legislation to allow the United States to slap huge tariffs on Chinese goods unless China allows the renminbi to appreciate, another mechanism for making Chinese goods more expensive here and American exports more competitive in China.
In Europe, policy makers have begun to fret that, despite the debt crisis that sent investors fleeing just a few months ago, the euro has now risen sharply again against the dollar, potentially weakening exports by making European goods more expensive. Those exports have been one of Europe's few sources of growth, and President Nicolas Sarkozy of France, who will take over leadership of the Group of 20 biggest economies, said over the weekend that he was pushing for a new system of coordinating global currencies as wealthy nations did in the 1970s, before a free market orthodoxy took hold.
It is unclear if the result will be a "currency war," as Brazil's finance minister recently warned, or if these are just warning shots, fired to force Beijing's leadership to make good on years of promises that it would allow the value of its currency to appreciate.
But that question is so in the air that Treasury Secretary Timothy F. Geithner felt compelled last week to try to dampen the fear. "We're not going to have a trade war," he said at a forum sponsored by The Atlantic. "We're not going to have currency wars." He acknowledged that the only way to break the cycle was for a country "to decide it is in its own interest to allow its currency to appreciate in response to market forces," and he said he believed that a "substantial fraction of the Chinese leadership" now understands the need to allow the currency to rise in value.
But it is unclear how far the Chinese are willing to go, since a more expensive currency means more expensive exports and a possible loss of jobs. "It's a tradeoff for the Chinese leadership," said one senior United States official who has talked at length to China's top officials. "They are under pressure from governors and mayors who fear unemployment in China's manufacturing territory, exactly what we are struggling with."
But the fact remains that the rest of the world is beginning to mimic the technique China has perfected: manipulating currencies for national advantage, while resisting political pressure from trading partners.
Some economists argue that the standoff over China's currency could herald a new era of protectionism reminiscent of the 1920s and '30s, which they say they fear could undermine trade and make a weak recovery even weaker. But others argue that it was the free-market consensus of the 1980s and '90s that weakened American competitiveness and was exploited by rising powers like China, calling for a more assertive policy to protect jobs, increase exports and keep industry at home.
"Everyone's playing beggar-thy-neighbor games, willingly or unwillingly," Michael Pettis, a Peking University professor and economist at the Carnegie Endowment for International Peace, said in an interview. "This is very similar to what happened in the '30s, when the collapse in Europe's ability to finance itself also meant a collapse in its trade deficit, and the world rushed around trying to find a new equilibrium in which every country tried to grab a larger share of the dwindling global demand."
Of course, many countries have manipulated their currencies before — the United States reached a political accord with Japan in the Reagan administration to do exactly that, in an effort to reduce a yawning trade deficit. And for decades, despite global rules prohibiting the practice, countries have sought to help their industries by providing subsidies to companies, as Europe did for years with Airbus, its competitor to Boeing.
But many around the world fear getting trampled as the United States and the Chinese battle each other. Japan intervened in the currency markets recently for the first time in six years, after accusing China of driving the yen up to a 15-year high, in part by buying Japanese debt. But it was a short-term move, many Japanese experts fear. "Japan is in a sense losing out in this competitive devaluation war" through inaction, said Kazuo Ueda, a professor of finance at the University of Tokyo, and a former member of the policy board of Japan's central bank.
Brazil took similar action and vowed last week to take whatever action it needs to prevent its currency from appreciating. Its finance minister, Guido Mantega, said in an interview that the actions by developed countries, including the United States, to keep interest rates at record lows, one way of devaluing a currency, was a "strategy from the past" that was threatening the economy of Brazil and other "dynamic" emerging markets.
"This is a kind of desperate action taken by countries to try to activate their economies," Mr. Mantega said. "Since they have not been able to activate their own internal markets, the way out becomes exports. So developed countries work on devaluing their currency in order to become competitive in the few dynamic markets in the world." Most Western governments, and many economists, place the blame for currency frictions on China, which has refused to let the renminbi trade at anywhere near its real value. Moreover, China has subsidized its exports with artificially low interest rates that shift money from consumers' bank deposits into cheap loans to businesses.
These tactics are nothing new, especially among the emerging economies of Asia. But experts say the sheer size of the Chinese economy means that its currency policies have global effects.
Not surprisingly, the Chinese see the problem differently. The Chinese press is filled with articles arguing that Americans do not appreciate China's efforts on their behalf. While other nations' currencies devalued against the dollar in the 2008 financial crisis, some economists note, the renminbi did not. And while Chinese exports may be artificially cheap, the effect has been to give American shoppers bargains at the expense of Chinese consumers.
"Nobody thinks about that," Shen Minggao, the chief China economist for Citibank, said in a telephone interview from Hong Kong. "Should China think about the welfare of Chinese consumers, not U.S. consumers?"
China could solve much of the problem by shifting to an economy driven by domestic consumption instead of profits from exports. And in principle, Chinese experts agree.
But China's progress toward that goal has been glacial. Since June, when the government said it would move the renminbi closer to its real value, the currency has gained about 1 percent. Most experts say the real value is 15 percent to 20 percent higher.
A variety of economic and political factors limit China's flexibility, said Li Daokui, who directs Tsinghua University's Center for China in the World Economy. Dr. Li sits on the government's Monetary Policy Committee, which advises China's central bank, and stressed he was not speaking for the government. If China lets its renminbi gain value too quickly, he said, that could make exports too expensive and collapse an entire sector of the economy. That would spike unemployment and risk social unrest, which Chinese leaders are committed to avoiding.
Dr. Li said that a "mild appreciation" of the renminbi was needed, but that ordinary Chinese need to be prepared for even that small step. Otherwise, he said, "it's counterproductive, because many people believe there's a conspiracy to keep the Chinese economy from growing."
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Europe Presses China to Alter Trade Practices
BRUSSELS (Reuters) — The European Union pressed China on Wednesday to amend its trade practices to stop technology theft, counterfeiting and discrimination against foreign companies, after it failed to make Beijing budge on its exchange rate.
Opening a day-long meeting with Premier Wen Jiabao of China, the president of the European Commission, José Manuel Barroso, said the commercial relationship between China and the European Union, worth 327 billion euros ($453 billion) in 2009, was vital for the global economy.
Chancellor Angela Merkel of Germany, the leader of Europe's biggest exporting country, met Mr. Wen on Tuesday evening and pledged to work for China to be granted the European Union's coveted "market economy" trade status by 2016. That would give Beijing better protection against European antidumping penalties — a major irritant for the Chinese.
But the European trade commissioner, Karel De Gucht, set out a litany of European grievances on which he said China must make progress if it wanted that status before it automatically receives it in 2016 under World Trade Organization rules.
"This question must be considered on the basis of clear commitments, for example, on access to the Chinese market, public procurement, protection of intellectual property and even the exchange rate," Mr. De Gucht told the French daily Le Monde.
Euro zone policy makers urged Mr. Wen on Tuesday to allow China's currency to rise more rapidly, but he politely rebuffed them, repeating Beijing's standard line on seeking currency stability.
The monetary dialogue came against a backdrop of growing global "currency wars" in which major industrial nations such as Japan and the United States are seeking to weaken their exchange rates while emerging economies such as Brazil and South Korea are taking or threatening measures to curb capital inflows.
Separately on Wednesday, the European Union signed a free trade agreement with South Korea, its first such pact with an Asian partner, after announcing the start of negotiations for a similar accord with Malaysia.
With the Doha round of global trade liberalization talks at an impasse, Brussels is increasingly looking to bilateral and regional trade agreements as a way forward to bolster commerce, especially with fast-growing Asian economies.
BRUSSELS (Reuters) — The European Union pressed China on Wednesday to amend its trade practices to stop technology theft, counterfeiting and discrimination against foreign companies, after it failed to make Beijing budge on its exchange rate.
Opening a day-long meeting with Premier Wen Jiabao of China, the president of the European Commission, José Manuel Barroso, said the commercial relationship between China and the European Union, worth 327 billion euros ($453 billion) in 2009, was vital for the global economy.
Chancellor Angela Merkel of Germany, the leader of Europe's biggest exporting country, met Mr. Wen on Tuesday evening and pledged to work for China to be granted the European Union's coveted "market economy" trade status by 2016. That would give Beijing better protection against European antidumping penalties — a major irritant for the Chinese.
But the European trade commissioner, Karel De Gucht, set out a litany of European grievances on which he said China must make progress if it wanted that status before it automatically receives it in 2016 under World Trade Organization rules.
"This question must be considered on the basis of clear commitments, for example, on access to the Chinese market, public procurement, protection of intellectual property and even the exchange rate," Mr. De Gucht told the French daily Le Monde.
Euro zone policy makers urged Mr. Wen on Tuesday to allow China's currency to rise more rapidly, but he politely rebuffed them, repeating Beijing's standard line on seeking currency stability.
The monetary dialogue came against a backdrop of growing global "currency wars" in which major industrial nations such as Japan and the United States are seeking to weaken their exchange rates while emerging economies such as Brazil and South Korea are taking or threatening measures to curb capital inflows.
Separately on Wednesday, the European Union signed a free trade agreement with South Korea, its first such pact with an Asian partner, after announcing the start of negotiations for a similar accord with Malaysia.
With the Doha round of global trade liberalization talks at an impasse, Brussels is increasingly looking to bilateral and regional trade agreements as a way forward to bolster commerce, especially with fast-growing Asian economies.
Candidates Trade Barbs Over China Trade
THURSDAY, 14 OCTOBER 2010 09:25
1
With the nation in a long and steep economic decline, few Americans are expected to base their votes this fall on international issues. Issues relating to diplomacy and the intricacies of international trade are, well, foreign to most of us. But one mysterious, far-off land seems to be very much on the minds of candidates and voters this year. A large number of campaign commercials are focusing on our nation's trade with and outsourcing of jobs to China, an emerging superpower that that has amassed a large share of America's wealth and holds huge amounts of America's debt.
At least 29 candidates in House and Senate races across the country have aired ads suggesting their opponents have been too sympathetic to China, the New York Times reported last Saturday. Unlike many issues that have candidates taking sides along party or ideological lines, this year's races find Democrats and Republicans, liberals and conservatives blaming their opponents for the loss of jobs and economic power to China. While the issue might seem better suited for challengers running against incumbents who have a record of supporting trade deals or tax policies said to encourage the export of jobs, some incumbents running against free trade advocates have turned the issue against their challengers. In Ohio, for instance, congressman Zack Space, a Democrat, hopes to make political hay of the fact that his Republican opponent is a self described free trader — or as a Zack Space ad describes him, he is "free-trading, job-killing Bob Gibbs."
"Bob Gibbs is a proud free trader," the narrator says in the ad that twice shows Gibbs at a lectern saying, "I'm a free trader." The ad claims Ohio has lost 91,000 jobs to China "through unfair trade deals like NAFTA" and that Gibbs wants more trade with China "to increase their standard of living." The ad uses the Chinese dragon for visual effect and addresses the Republican foe with the Chinese word for thank you.
"As they say in China, xie xie, Mr. Gibbs!"
How the North American Free Trade Agreement sends jobs to China is not explained in the ad, but campaign spots of 30 seconds or less are not designed for thoughtful analysis. Republican challenger Spike Maynard in West Virginia uses Chinese music and the image of Chairman Mao, the Chinese ruler who has been dead for decades, to say that a bill supported by Rep. Nick Rahall created wind-turbine jobs in China.
Sixty years ago, Republicans taunted Democrats with the question, "Who lost China?" after Chairman Mao and his fellow Communists took over the mainland. Now Democrats and Republicans are fighting over who is responsible for building the Asian tiger's economy at the expense of American workers. Senate majority leader Harry Reid, in a tough fight for reelection in Nevada, has begun running ads calling Republican Sharron Angle "a foreign worker's best friend" for supporting corporate tax breaks that Reid says has led to outsourcing of jobs to China and India.
Republican John Boehner of Ohio, the House minority leader, last week blamed President Obama and Speaker Nancy Pelosi for "a stimulus that shipped jobs overseas to China instead of creating jobs here at home." And Pelosi, the Times reports, began encouraging candidates this spring to use the issue against Republicans after she reviewed polls showing voters were in favor of eliminating tax breaks for companies that do business in China. Democrats cite studies from the Economic Policy Institute purporting to show that three million American jobs have been outsourced to China since 2001 because of the growing trade imbalance between the two countries.
Politicians — as well as economists and trade experts — are far from unanimous, however, on how much of mainland China's growth in jobs and economic output is due to American trade or tax policies. Much of the expansion of its manufacturing base has come from investment from Asian sources, including Taiwan, Hong Kong, and South Korea. But columnist and TV commentator Pat Buchanan, who repeatedly raised the balance of trade deficit with China as a candidate for President in the 1990's, warns that the threat to America from Chinese economic and military power continues to grow as a richer, stronger China pursues aggressive trade diplomatic policies.
"Through predatory trading, China had killed its U.S. competitor in rare-earth materials, establishing almost a global monopoly," Buchanan wrote in a recent column. "And with Beijing's threat to use its monopoly of rare-earth materials to bend nations to its will, how does the Milton Friedmanite free-trade ideology of the Republican Party, which fed Beijing $2 trillion in trade surpluses at America's expense over two decades, look now?" he asked.
Some members of Congress now blaming the loss of jobs to China on their opponents would probably prefer not to look at their own voting records. In 2007 Congress passed legislation to ban incandescent light bulbs, beginning with the 100-watt bulb in 2012 and ending with the 40-watt bulb in 2014. Since the law was passed, General Electric has closed its last major bulb-producing factory in the United States. Many of the more energy-efficient, but more-costly-to-produce, fluorescent bulbs will likely be made in China, where the labor costs are much lower than in the U.S.
"Environmental activists and their allies in Washington were either too ignorant of basic economics to see these job losses coming, or they were simply too callous to really care," Heartland Institute science director Jay Lehr told Newsmax.com.
Meanwhile, the debate goes on — from California, where Senator Barbara Boxer, a Democrat, rips Republican rival and former Hewlitt-Packard executive Carly Fiorina for "proudly stamping her products 'Made in China,' " to Connecticut, where in a recent debate Democratic Senate candidate Richard Blumenthal challenged Republican Linda McMahon to explain why the action figures for her World Wrestling Entertainment were made in China. McMahon said that decision was made by the toy company, adding the U.S. does not "have the kind of policies in place here that are conducive to manufacturing.
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US hopes for more action from China on currency correction
WASHINGTON: The US administration has delayed its report on Yuan to Congress, holding back possible punitive action against China in recognition of steps to accelerate the Chinese currency appreciation, to the advantage of the American economy.
Treasury secretary Timothy Geithner said that China has taken measures since early September to help its currency appreciate.
"If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency," the US treasury department said.
Since June 19, when China announced its intent to reform its currency regime allowing the exchange rate to move in response to market forces, Yuan has appreciated by about three per cent against the US dollar, it said.
Since September 2, the pace of appreciation has accelerated to a rate of more than one per cent per month.
The treasury said in the coming weeks, meetings between heads of State, finance ministers, and central bank governors of the G20 and the Asia-Pacific region would provide an opportunity to progress balanced growth.
"The treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings," it said.
By continuing to strengthen domestic demand and allowing the exchange rate to move higher to reflect fundamental economic forces, China will make a significant positive contribution to the global rebalancing effort, it said.
Currency reforms in China would also help reduce pressure on those emerging market economies that have more flexible exchange rates, and provide a level playing field for trading partners around the world, it said.
India is one of these emerging economies, which have allowed its currency to move largely according to market forces.
The US lawmakers are agitated over alleged currency manipulation by China, charging that it worked against the interest of American exporters. They want punitive action,such as increased tariff on imports from China.
The monthly US trade deficit surged in August, fueled by a record gap in trade with China and a weak overall showing for American exports.
The US imports of Chinese goods soared to $35.2 billion from $33.2 billion in July. The US exports to China fell to $7.2 billion from $7.3 billion.
The overall US trade gap was $46 billion in August, up from $42 billion in July.
The US treasury said it was a global challenge to build a stronger, more balanced and sustainable global economic recovery. The issue is multilateral and not limited to the US and China, it said.
Read more: US hopes for more action from China on currency correction - The Times of India http://timesofindia.indiatimes.com/...rection/articleshow/6759602.cms#ixzz12Wd8EKxn
WASHINGTON: The US administration has delayed its report on Yuan to Congress, holding back possible punitive action against China in recognition of steps to accelerate the Chinese currency appreciation, to the advantage of the American economy.
Treasury secretary Timothy Geithner said that China has taken measures since early September to help its currency appreciate.
"If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency," the US treasury department said.
Since June 19, when China announced its intent to reform its currency regime allowing the exchange rate to move in response to market forces, Yuan has appreciated by about three per cent against the US dollar, it said.
Since September 2, the pace of appreciation has accelerated to a rate of more than one per cent per month.
The treasury said in the coming weeks, meetings between heads of State, finance ministers, and central bank governors of the G20 and the Asia-Pacific region would provide an opportunity to progress balanced growth.
"The treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings," it said.
By continuing to strengthen domestic demand and allowing the exchange rate to move higher to reflect fundamental economic forces, China will make a significant positive contribution to the global rebalancing effort, it said.
Currency reforms in China would also help reduce pressure on those emerging market economies that have more flexible exchange rates, and provide a level playing field for trading partners around the world, it said.
India is one of these emerging economies, which have allowed its currency to move largely according to market forces.
The US lawmakers are agitated over alleged currency manipulation by China, charging that it worked against the interest of American exporters. They want punitive action,such as increased tariff on imports from China.
The monthly US trade deficit surged in August, fueled by a record gap in trade with China and a weak overall showing for American exports.
The US imports of Chinese goods soared to $35.2 billion from $33.2 billion in July. The US exports to China fell to $7.2 billion from $7.3 billion.
The overall US trade gap was $46 billion in August, up from $42 billion in July.
The US treasury said it was a global challenge to build a stronger, more balanced and sustainable global economic recovery. The issue is multilateral and not limited to the US and China, it said.
Read more: US hopes for more action from China on currency correction - The Times of India http://timesofindia.indiatimes.com/...rection/articleshow/6759602.cms#ixzz12Wd8EKxn
Well practicaly speaking, curremcy re valuation will not help US economy that much except reduce its deficit with China a little. However, that portion of thedeficit will move to other countries like India, sri lanka or Bangladesh.
The Global economy is still struggling along and we dont want a currency war to start that would hurt the global economy. The upcoming G20 meet should be interesting to watch on this account.
The Global economy is still struggling along and we dont want a currency war to start that would hurt the global economy. The upcoming G20 meet should be interesting to watch on this account.
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Who's winning the currency wars?
Those who are worried about currency wars are too late — the wars are already here. China and the United States are both winning the race to cheapen their currencies for now. But if the rhetoric keeps heating up, everyone will be a loser.
American and Chinese officials traded blows over the weekend, setting the stage for a tense G20 summit next month. The head of China's central bank rejected the idea of a big revaluation for the yuan, advocating a slow-acting "herbal medicine" instead. Treasury Secretary Tim Geithner took a swipe at countries with "significantly undervalued" currencies, of which China is an obvious example.
The United States claims to be a loser in the currency wars. But in reality it is winning. The dollar has fallen sharply against most of its trading partners' currencies. On a trade-weighted basis, the dollar is the lowest it has been all year, according to the Federal Reserve major currencies index. The likelihood of an imminent bout of money-printing can keep that trend going for a long time.
China, meanwhile, claims not to be a winner. But that is disingenuous too. While the yuan just hit its highest level versus the dollar since officially abandoning its dollar peg in 2005, it has fallen heavily against most other currencies. The euro, the currency of China's biggest trading partner, has strengthened 14 percent against the yuan. The Japanese yen is not far behind. Various emerging markets, such as Brazil, have also seen their currencies soar.
The gap between winners and losers is widening. With rates as low as can be in the West, money has poured into assets in the East and South. Many Asian stock markets are at multi-year highs — benchmark indices in Indonesia and the Philippines hit records last week. Emerging market bonds too are rallying, as investors scramble for yields. That adds further upward pressure to currencies already out of relative whack with their trading peers.
There is no easy answer. But that, unfortunately, is a fact of life when the world has been living in such an unbalanced way for years. A rate hike in the United States might squash economic growth and leave the world facing another dip. A rapid China revaluation could price the country's exporters out of the market and lead to widespread unemployment.
A gradual but sustained revaluation of the yuan versus the dollar — combined with a halt to the dollar's own depreciation — is the least bad way forward. But getting such a deal, as positions become increasingly entrenched, will be tricky. And if both sides refuse to do anything, a currency war could mutate into a trade war — a genuine lose-lose scenario.
Those who are worried about currency wars are too late — the wars are already here. China and the United States are both winning the race to cheapen their currencies for now. But if the rhetoric keeps heating up, everyone will be a loser.
American and Chinese officials traded blows over the weekend, setting the stage for a tense G20 summit next month. The head of China's central bank rejected the idea of a big revaluation for the yuan, advocating a slow-acting "herbal medicine" instead. Treasury Secretary Tim Geithner took a swipe at countries with "significantly undervalued" currencies, of which China is an obvious example.
The United States claims to be a loser in the currency wars. But in reality it is winning. The dollar has fallen sharply against most of its trading partners' currencies. On a trade-weighted basis, the dollar is the lowest it has been all year, according to the Federal Reserve major currencies index. The likelihood of an imminent bout of money-printing can keep that trend going for a long time.
China, meanwhile, claims not to be a winner. But that is disingenuous too. While the yuan just hit its highest level versus the dollar since officially abandoning its dollar peg in 2005, it has fallen heavily against most other currencies. The euro, the currency of China's biggest trading partner, has strengthened 14 percent against the yuan. The Japanese yen is not far behind. Various emerging markets, such as Brazil, have also seen their currencies soar.
The gap between winners and losers is widening. With rates as low as can be in the West, money has poured into assets in the East and South. Many Asian stock markets are at multi-year highs — benchmark indices in Indonesia and the Philippines hit records last week. Emerging market bonds too are rallying, as investors scramble for yields. That adds further upward pressure to currencies already out of relative whack with their trading peers.
There is no easy answer. But that, unfortunately, is a fact of life when the world has been living in such an unbalanced way for years. A rate hike in the United States might squash economic growth and leave the world facing another dip. A rapid China revaluation could price the country's exporters out of the market and lead to widespread unemployment.
A gradual but sustained revaluation of the yuan versus the dollar — combined with a halt to the dollar's own depreciation — is the least bad way forward. But getting such a deal, as positions become increasingly entrenched, will be tricky. And if both sides refuse to do anything, a currency war could mutate into a trade war — a genuine lose-lose scenario.
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Investors eye FX wars and budget cuts
(Reuters) - Political rows over currencies and a harsh dose of fiscal austerity are set to test financial markets in the coming week, just as investors appear to be settling in for a solid end-of-year stock rally.
The G20 finance meeting in South Korea at the end of the week is likely to be dominated by disagreements over foreign exchange rates, with implications for global investment flows well beyond currencies.
Japan's unsuccessful struggle to date to keep its yen competitive, for example, is one of the roots of its stock market's massive underperformance this year.
Britain's spending review on Wednesday, meanwhile, is also likely to be watched closely given its billing as one of the most detailed expositions of fiscal austerity plans in a Group of Seven country to date.
Both come as prospects of the U.S. Federal Reserve printing more money as part of a new quantitative easing (QE) stimulus program have driven world equities to two-year highs.
In the past week, the MSCI all-country world index hit a level last seen just after the collapse of Lehman Brothers in September 2008.
It has been led by flows into emerging markets. Fund trackers EPFR said global emerging market equity funds took in a more than a net $2 billion in the week to October 13, while Pacific equity funds had their best week on record.
By contrast, since markets started to plan for more QE from the Fed the dollar has fallen some 9.5 percent against a basket of major currencies.
FX TENSION
This effective devaluation of the dollar has triggered anger in countries likely to see their currencies rise or, if pegged, pressured to rise as a result.
Responses have ranged from straight intervention (Japan) through withholding tax on investors (Thailand) to threats of new limits on forwards (South Korea). Beijing and Washington have remained at loggerheads with the latter pressuring for something to be done about what it sees as an unreasonably weak yuan.
It is with that as a background that investors are gearing for what could be a turbulent G20 finance summit.
"The body language doesn't look good," Piroska Nagy, senior adviser to the chief economist at the European Bank for Reconstruction and Development, told a Reuters briefing.
Failure to find agreement, which many view as likely, could stir up financial markets in the short term -- for example by confirming the likelihood of QE and creating more pressure for currency intervention.
That would keep current equity trends steady or even enhance them -- witness the initial gains on stock markets on Friday after Fed Chairman Ben Bernanke confirmed the likelihood of more easing.
(Reuters) - Political rows over currencies and a harsh dose of fiscal austerity are set to test financial markets in the coming week, just as investors appear to be settling in for a solid end-of-year stock rally.
The G20 finance meeting in South Korea at the end of the week is likely to be dominated by disagreements over foreign exchange rates, with implications for global investment flows well beyond currencies.
Japan's unsuccessful struggle to date to keep its yen competitive, for example, is one of the roots of its stock market's massive underperformance this year.
Britain's spending review on Wednesday, meanwhile, is also likely to be watched closely given its billing as one of the most detailed expositions of fiscal austerity plans in a Group of Seven country to date.
Both come as prospects of the U.S. Federal Reserve printing more money as part of a new quantitative easing (QE) stimulus program have driven world equities to two-year highs.
In the past week, the MSCI all-country world index hit a level last seen just after the collapse of Lehman Brothers in September 2008.
It has been led by flows into emerging markets. Fund trackers EPFR said global emerging market equity funds took in a more than a net $2 billion in the week to October 13, while Pacific equity funds had their best week on record.
By contrast, since markets started to plan for more QE from the Fed the dollar has fallen some 9.5 percent against a basket of major currencies.
FX TENSION
This effective devaluation of the dollar has triggered anger in countries likely to see their currencies rise or, if pegged, pressured to rise as a result.
Responses have ranged from straight intervention (Japan) through withholding tax on investors (Thailand) to threats of new limits on forwards (South Korea). Beijing and Washington have remained at loggerheads with the latter pressuring for something to be done about what it sees as an unreasonably weak yuan.
It is with that as a background that investors are gearing for what could be a turbulent G20 finance summit.
"The body language doesn't look good," Piroska Nagy, senior adviser to the chief economist at the European Bank for Reconstruction and Development, told a Reuters briefing.
Failure to find agreement, which many view as likely, could stir up financial markets in the short term -- for example by confirming the likelihood of QE and creating more pressure for currency intervention.
That would keep current equity trends steady or even enhance them -- witness the initial gains on stock markets on Friday after Fed Chairman Ben Bernanke confirmed the likelihood of more easing.
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SEOUL, South Korea — The Federal Reserve's decision to pump $600 billion into the American economy has put South Korean government officials in a difficult spot. As the site of the Group of 20 leaders' summit meeting this week, South Korea had hoped to host efforts to mediate the dispute between the United States and China over exchange-rate policies. But like other fast-growing countries, it is confronting economic worries of its own, a surge of capital seeking higher yields likely to be accelerated by the Fed's move, which is expected to push down American interest rates and the value of the dollar.
With annual economic growth at nearly 5 percent and real estate prices so high that there is talk of a bubble, South Korea announced steps in June to limit the risks arising from sharp reversals in capital flows, a main source of instability during the 1997-98 Asian financial crisis.
Last Friday, the finance ministry and the central bank moved for the second time in a week to inspect foreign exchange positions, a step seen as an effort to curb speculation. Lawmakers are weighing whether to tax interest income on bonds bought by foreigners.
There is also talk of whether the South Korean currency, the won, should be devalued to stay competitive with Japan, which intervened in foreign-exchange markets in September in a short-lived attempt to stop the devaluation of the yen.
The steps come as institutions like the International Monetary Fund, which has long preached against controls on capital flows, are reassessing their usefulness.
With slow growth in the United States, Japan and other parts of the developed world, South Korea and countries like it have benefited from foreign investment. That compels government to confront "the challenge of balancing the need for large capital inflows — especially foreign direct investment — with ensuring competitiveness, financial sector stability, and low inflation," said Vikram Nehru, the World Bank's chief economist for East Asia.
On the eve of the summit meeting, that challenge has been the talk of leading economists here.
"How can the United States tell China and Japan not to intervene when it is doing the same?" in effect, with its currencies, said Kang Sung-jin, an economist at Korea University.
Shin Min-yong, an economist at LG Economic Research Institute, said the Fed's actions did not match American rhetoric. "To come up with this monetary easing at such a sensitive time appears to the rest of the world to be at odds with what the United States has said about holding hands to fix the world economy together," he said.
In a recent interview, Changyong Rhee, the personal representative to the G-20 for the South Korean president, Lee Myung-bak, said that South Korea had a distinct role to play as the first emerging-market economy to host the G-20 leaders' meeting, a source of national pride.
Dr. Rhee, a Harvard-trained economist, spoke of bridging the disputes between the United States, its closest ally, and China, its largest trading partner, and of prodding the G-20 to pay more attention to development.
But the escalating currency tensions now threaten to overshadow those efforts.
"Yen, yuan, won — if one currency goes down, the other nations will react in kind, and with even more extreme measures," Cho Gyeong-lyeob, an economist at the Korean Economic Research Institute, a private market research firm, said. "It would lead to a breakdown of the cooperative mechanism that we have all been aspiring to maintain."
Some South Korean companies said they were already feeling the bite from the weaker dollar, which has dropped about 8 percent against the won this year. Nam Bok-gyu, president of Young Poong Filltex, a small textiles producer, said his profit margins had been squeezed even before the Fed's easing.
"All of us exporters can only be hurt by this," he said of the Fed's action, in an office in an industrial neighborhood in western Seoul, filled with racks of hanging textile samples.
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A senior Chinese official is warning that U.S. lawmakers shouldn't interfere in a spat over a Chinese currency policy that U.S. critics say costs American jobs.
Chinese Vice Foreign Minister Cui Tiankai, said in an interview on Wednesday that if either side "chooses a confrontational approach, I think everybody will come out as losers."
Mr. Cui says China's currency policy shouldn't be a focus of this week's Group of 20 economic summit in Seoul.
U.S. lawmakers and manufacturers contend that an undervalued Chinese currency gives Beijing an unfair trade boost.
The U.S. House of Representatives passed legislation in September to allow Washington to sanction governments that manipulate their currency for trade advantage.
US quantitative easing forces China to face hard choice
14:15, November 05, 2010
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The U.S. Federal Reserve, as expected by market actors, has announced a 600 billion-U.S.-dollar quantitative easing decision to purchase treasury bonds. However, India and Australia are taking a different approach and increasing their interest rates. Their conflicting actions show an international environment where coordination of macroeconomic policies among nations is weak or even absent. In that context, it is not easy for China to decide the next step in its monetary policy.
The speculation on yuan appreciation and concerns over the likely influx of hot money are particularly adding pressure on China's monetary policy.
Yuan appreciation
The U.S. dollar has been weakening since September this year, while the Chinese currency yuan has been getting stronger quickly recently due to market expectations that the Fed would adopt quantitative easing. On Nov. 2, when the Fed began its two-day meeting on interest rate policy, the U.S. dollar index plummeted 0.65 percent. That was followed by a sharp rise in the RMB central parity rate against the U.S. dollar, which went up 107 basis points and ended at 6.682.
However, as the market is still holding a wait-and-see attitude, the yuan appreciation was moderate yesterday, gaining 16 basis points at 6.6761. That does not imply any abating of the expectation of a stronger yuan in a long run. The futures market set the RMB at 6.5156 against the dollar.
A senior executive with New York Mellon predicts that the U.S. dollar will be even weaker, while the euro and Asian currencies will face mounting pressure of appreciation. That will prompt even more drastic capital flow internationally. He hopes that the process of yuan appreciation will be slow and gradual because if the yuan were to rise too sharply, it could affect not only Chinese economy, but the global market as a whole.
However, other analysts do not see much room for the dollar to fall further because it has been down at least 7 percent since September.
Hot money
The confidence in the emerging markets and the different monetary policies of the United States and the emerging economies are changing the international capital flow. Statistics of the Mellon IFLOW system show that massive capital, including pension funds in the Western countries, has been chasing bonds, foreign exchange markets and stock markets in the emerging economies.
Xiang Songzuo, an expert with Renmin University pointed out that the easy money made by the relaxed U.S. policy does not stay in the United States. It creates excessive liquidity globally, which mainly flows into emerging markets, including China and the commodities market as well.
Ding Yifan with the State Council Researcher Center is more optimistic. Ding said that hot money into China has been controlled much more effectively than any in other countries thanks to China's closed capital account.
China's central bank apparently has realized the problem. Its recent policy report has highlighted the different monetary policies in other countries and warned of the possible hot money inflow. The report pointed out that the world economic recovery is a slow process, while China's economy is growing quickly. A new round of stimulus initiatives have been launched or considered in major developed economies. As a result, the global liquidity and monetary environment will remain easy and enormous capital is likely to rush into fast-growing emerging economies.
Difficult choice for China's monetary policy
What will China do to deal with all the pressure of yuan appreciation, hot money inflow and inflationary prospects?
The central bank has stated clearly in its report that it would keep a moderately loose monetary policy and at the same time be more flexible and specific. The monetary policy will gradually move toward the where it was before the global financial crisis, according to the report.
The report hints of a possible minor adjustment under the wider context of moderately loose monetary policy. The central bank's unexpected action on Oct. 19 of raising the one-year benchmark interest rate by 0.25 percentage points both for deposits and loans is regarded as a signal of such changes.
There is also concern about whether China's interest rate hike would trigger a higher risk of capital inflow and yuan appreciation. Liu Yuhui, an expert with the Chinese Academy of Social Sciences does not agree with that. He argued that the pressure of RMB appreciation comes from the high economic growth because the hot money is chasing after asset price differences, not an interest rate spread. He believes that the pressure of cross-border capital inflow and currency appreciation can be abated if China takes firm actions on slowing its economy and curbing the property bubble.
The expert with New York Mellow also agreed that the central bank's interest rate hike last month is still consistent with its commitment to a moderately easy monetary policy and does not have much impact on global capital flow. However, if the central bank keeps doing that in a certain period of time, it could motivate speculative behaviors on the global capital market.
Liu sees much more potential in quantitative and administrative tools than in a new round of interest rate hikes for China's policy adjustment in the next stage. However, the possibility that occasional interest rate hikes can be made to affect market expectations and thus curb property bubbles and speculative actions cannot be excluded.
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There will be no trade war between the US and China, and more financial coordination is needed to ensure a stable economic recovery, presidential aide Arkady Dvorkovich told RT ahead of the G20 summit in South Korea.
"The US and China are so interconnected. Any actions that may lead to a major trade war could worsen the situation in each country. So, most likely, they will find a compromise," Dvorkovich said.
The US Federal Reserve has recently come under criticism for increasing its monetary mass, which critics say may lead to imbalance of currency exchange rates. Dvorkovich says it is a risk, but the trend itself is natural.
"We will need to agree on a coordinated approach in this field to avoid any major risks for the global system as a whole and for any particular markets. The trend itself is natural, it is not a danger, and we should find a way to deal with this trend," he said. "Keeping with the role of the leader in the global economy is not just a benefit, it is also a big responsibility and to some extent a burden. I think the time has come when the US wants to share this burden with other countries."
As for the collapse of the dollar, Dvorkovich believes no one should expect that.
"Generally we do agree that these actions of the US monetary authorities can actually decrease the role of dollar as a reserve currency," Dvorkovich said. "But the US economy is still the biggest economy in the world, and most of the assets in the world are in the United States or somehow related to the United States. No one should expect that the dollar will collapse and we believe the role of other currencies will increase only over time and slowly – though much faster than before."
Speaking about the upcoming summit's agenda, Dvorkovich said that the discussion points at G20 summits have already become tradition, with the leaders looking at macroeconomic imbalances and how to coordinate anti-crisis and overall macroeconomic policies.
"This time sole leaders will probably focus on the issues related to the international monetary system, currency markets and instabilities that can be created by the recent decisions to expand monetary mission in the US and potential protectionist measures in other countries to make sure that national currency markets are stable," he said.
Dvorkovich added that the G20 summits will gradually move to a long-term agenda.
"It is happening already but it will take time. It is still a developing format," Dvorkovich said.
As for Russia, it wants a more coordinated approach from its partners, he said.
"We don't need surprises from our partners. We want a more intensive policy dialog between central banks and finance ministries. This can lead to a greater stability on the markets. Also we believe that we should pay more attention to issues connected with energy security, which is our traditional area of concern," Dvorkovich said.
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China is in a tight pickle. Inflation is spiking so they had to raise interest rates. They can't afford to drop it or face hyperinflation. What China will do is what they have been doing for the last several years. They will print more money and buy FX reserves to depreciate the RMB. The Chinese bubble will continue and so will its soaring inflation.
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Time has come for this bubble to burst. All G20 needs to do is to pin that bubble.
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WASHINGTON — Anyone wondering what President Obama will face when he arrives in South Korea on Wednesday for a global financial summit meeting need look no further than an announcement by China's leading state-endorsed rating agency, which downgraded the United States' credit rating on Tuesday — and provocatively questioned American leadership of the global economy.
The agency cited the Federal Reserve's decision to pump more money into the United States economy and warned of Washington's "deteriorating debt repayment capability" and "the serious defects in the United States economic development and management model," which it predicted would lead to "fundamentally lowering the national solvency."
In the rest of the world, the United States is still the strongest of credit risks, and the Chinese downgrade is not expected to have much real impact. Nonetheless, the sharply worded attack from the country that is buying billions of dollars in American debt each month was just the latest rhetorical assault on the United States, as officials from China to Germany to Brazil suggest that Washington's addiction to debt has greatly diminished its credibility.
But those critics, mostly countries that fear that recent American policy will devalue the dollar and undercut their competitiveness, do not appear poised to offer an alternative to an economic order that has been led by the United States since the end of World War II, or to the role the dollar has played for decades as the de facto world gold standard.
The Chinese, who have protested that the Federal Reserve is trying to unilaterally manipulate the dollar for the purpose of creating jobs at home, have been accused of doing exactly that for years — the root of many of the world's economic tensions today, in the eyes of Mr. Obama and his economic aides.
Germany's blunt-speaking finance minister also accused the United States of Chinese-like currency manipulation. But Germany is one of the few competitive economies in the troubled euro zone, which includes countries like Ireland, Greece and Portugal, that are fighting to stave off national bankruptcy. The euro is hardly poised to become the global alternative to the dollar that many once envisioned.
Even if there is no immediate rival to the United States as a monetary power, American officials acknowledge that Mr. Obama is going to have a far more difficult time winning any kind of consensus strategy out of the Group of 20 than he did during the first such meeting of his presidency, in London in 2009.
"The world is more divided today than it was in London because nations not facing the prospect of a depression have that luxury," said Lawrence H. Summers, who leaves the White House next month after two years as the head of the National Economic Council, and as Mr. Obama's top economic adviser. "Part of a return to normalcy is that nations more strongly and disparately assert their immediate interests."
A senior administration official said that for all the talk of alternatives to the dollar, it remained the currency of choice. "People are still willing to loan money to the United States for 4 percent over 30 years," the official said. "Investment choices are choices among alternatives and the United States remains a strong choice."
The nations gathering in Seoul, South Korea, this week to discuss global economic issues show few signs of sublimating their own interests to some greater good. "It's become every country for itself," said Jeffrey E. Garten of the Yale School of Management, who is participating in a meeting of business leaders in Seoul. "In letting domestic considerations so completely trump international considerations, the U.S. is reinforcing views in France and China, among others, that the entire monetary system is a political toy of a dysfunctional U.S. political system."
One hears versions of that around the world. "It would be more desirable for the U.S. to fix its own industries, fix its structure and become more competitive," said Cho Gyeong-lyeob, an economist at the Korea Economic Research Institute, a research organization. "Instead, it chose the easy way out."
The "easy way out" he referred to was the Federal Reserve's decision last week to flood $600 billion into the economy. The Fed's chairman, Ben S. Bernanke, said the technique was the only tool remaining to push down interest rates and try to build demand, and with it the creation of jobs.
But abroad, the move looks very different. From Europe to Asia, officials have been arguing that the Fed was simply enabling America's dependence on debt-fueled growth, this time at the expense of other nations.
If the Fed's action devalues the dollar, as is widely expected, it will make the products of other countries less competitive.
The emerging economies have some legitimate worries. If rates fall even further in the United States, investment is expected to flow to markets where returns are higher. Brazil and other nations are already warning of "asset bubbles" — rising prices for real estate and other investments — that could create conditions similar to those that led to the bust in the United States three years ago. They are considering taxes on incoming capital.
"I see more risks and possibilities of global excesses in the decisions that have been made by the Fed than benefits," Jean-Claude Junker, the chairman of a group that represents euro-zone finance ministers, said in Paris.
That sentiment appears to be strengthening resistance to the United States as it pushes new solutions to address the financial imbalances that many economists believe threaten the stability of the global economy.
Two weeks ago Mr. Obama's Treasury secretary, Timothy F. Geithner, suggested a new way of reducing the yawning gap between countries that are running huge export surpluses and those, including the United States, that run big deficits. He suggested a numerical target: trade surpluses should not exceed 4 percent of a nation's gross domestic product. There was a near rebellion.
The Chinese rejected a firm target. So did Angela Merkel, the German chancellor, who told The Financial Times on Monday that Mr. Geithner's plan was "too narrowly conceived" and suggested that the core problem was a lack of competitiveness.
"It's not going to happen," one senior European diplomat said of Mr. Geithner's plan on Tuesday, "and the Americans know it." Mr. Geithner still endorses the idea, but he seems to be scaling back.
The lack of alternatives has also led to some novel suggestions, notably from Robert B. Zoellick, the president of the World Bank, who suggested this week that the world go back to tying currencies to gold — nearly 40 years after President Richard M. Nixon ended that linkage. His suggestion, like Mr. Geithner's, was not exactly welcomed as a solution.
Many economists said they suspected more cynical calculations at work in blaming the United States. China has almost certainly managed to deflect criticism away from its own practices; similarly, the Germans may have distracted European nations dissatisfied with how Germany, the largest European economic power, has dealt with its debt-laden, free-spending euro partners. Part of the problem is that as countries go their own way, they are each arguing that they are acting for the greater global good.
When Britain slashed its budgets recently, its new government said that was the only way to restart growth and bring back the confidence of investors. Others around Europe are doing the same, arguing that a strong Europe is in the interest of the global economy.
The Obama administration has gone in the opposite direction: deficit spending. Mr. Obama argued the other day that his No. 1 priority, for the good of the country and the world, was to restore growth quickly, and that European-style austerity programs would run the risk of putting more people out of work. And the Chinese have refused to let their currency appreciate in value, despite huge trade surpluses, saying they have to worry first about job creation and stability.
The agency cited the Federal Reserve's decision to pump more money into the United States economy and warned of Washington's "deteriorating debt repayment capability" and "the serious defects in the United States economic development and management model," which it predicted would lead to "fundamentally lowering the national solvency."
In the rest of the world, the United States is still the strongest of credit risks, and the Chinese downgrade is not expected to have much real impact. Nonetheless, the sharply worded attack from the country that is buying billions of dollars in American debt each month was just the latest rhetorical assault on the United States, as officials from China to Germany to Brazil suggest that Washington's addiction to debt has greatly diminished its credibility.
But those critics, mostly countries that fear that recent American policy will devalue the dollar and undercut their competitiveness, do not appear poised to offer an alternative to an economic order that has been led by the United States since the end of World War II, or to the role the dollar has played for decades as the de facto world gold standard.
The Chinese, who have protested that the Federal Reserve is trying to unilaterally manipulate the dollar for the purpose of creating jobs at home, have been accused of doing exactly that for years — the root of many of the world's economic tensions today, in the eyes of Mr. Obama and his economic aides.
Germany's blunt-speaking finance minister also accused the United States of Chinese-like currency manipulation. But Germany is one of the few competitive economies in the troubled euro zone, which includes countries like Ireland, Greece and Portugal, that are fighting to stave off national bankruptcy. The euro is hardly poised to become the global alternative to the dollar that many once envisioned.
Even if there is no immediate rival to the United States as a monetary power, American officials acknowledge that Mr. Obama is going to have a far more difficult time winning any kind of consensus strategy out of the Group of 20 than he did during the first such meeting of his presidency, in London in 2009.
"The world is more divided today than it was in London because nations not facing the prospect of a depression have that luxury," said Lawrence H. Summers, who leaves the White House next month after two years as the head of the National Economic Council, and as Mr. Obama's top economic adviser. "Part of a return to normalcy is that nations more strongly and disparately assert their immediate interests."
A senior administration official said that for all the talk of alternatives to the dollar, it remained the currency of choice. "People are still willing to loan money to the United States for 4 percent over 30 years," the official said. "Investment choices are choices among alternatives and the United States remains a strong choice."
The nations gathering in Seoul, South Korea, this week to discuss global economic issues show few signs of sublimating their own interests to some greater good. "It's become every country for itself," said Jeffrey E. Garten of the Yale School of Management, who is participating in a meeting of business leaders in Seoul. "In letting domestic considerations so completely trump international considerations, the U.S. is reinforcing views in France and China, among others, that the entire monetary system is a political toy of a dysfunctional U.S. political system."
One hears versions of that around the world. "It would be more desirable for the U.S. to fix its own industries, fix its structure and become more competitive," said Cho Gyeong-lyeob, an economist at the Korea Economic Research Institute, a research organization. "Instead, it chose the easy way out."
The "easy way out" he referred to was the Federal Reserve's decision last week to flood $600 billion into the economy. The Fed's chairman, Ben S. Bernanke, said the technique was the only tool remaining to push down interest rates and try to build demand, and with it the creation of jobs.
But abroad, the move looks very different. From Europe to Asia, officials have been arguing that the Fed was simply enabling America's dependence on debt-fueled growth, this time at the expense of other nations.
If the Fed's action devalues the dollar, as is widely expected, it will make the products of other countries less competitive.
The emerging economies have some legitimate worries. If rates fall even further in the United States, investment is expected to flow to markets where returns are higher. Brazil and other nations are already warning of "asset bubbles" — rising prices for real estate and other investments — that could create conditions similar to those that led to the bust in the United States three years ago. They are considering taxes on incoming capital.
"I see more risks and possibilities of global excesses in the decisions that have been made by the Fed than benefits," Jean-Claude Junker, the chairman of a group that represents euro-zone finance ministers, said in Paris.
That sentiment appears to be strengthening resistance to the United States as it pushes new solutions to address the financial imbalances that many economists believe threaten the stability of the global economy.
Two weeks ago Mr. Obama's Treasury secretary, Timothy F. Geithner, suggested a new way of reducing the yawning gap between countries that are running huge export surpluses and those, including the United States, that run big deficits. He suggested a numerical target: trade surpluses should not exceed 4 percent of a nation's gross domestic product. There was a near rebellion.
The Chinese rejected a firm target. So did Angela Merkel, the German chancellor, who told The Financial Times on Monday that Mr. Geithner's plan was "too narrowly conceived" and suggested that the core problem was a lack of competitiveness.
"It's not going to happen," one senior European diplomat said of Mr. Geithner's plan on Tuesday, "and the Americans know it." Mr. Geithner still endorses the idea, but he seems to be scaling back.
The lack of alternatives has also led to some novel suggestions, notably from Robert B. Zoellick, the president of the World Bank, who suggested this week that the world go back to tying currencies to gold — nearly 40 years after President Richard M. Nixon ended that linkage. His suggestion, like Mr. Geithner's, was not exactly welcomed as a solution.
Many economists said they suspected more cynical calculations at work in blaming the United States. China has almost certainly managed to deflect criticism away from its own practices; similarly, the Germans may have distracted European nations dissatisfied with how Germany, the largest European economic power, has dealt with its debt-laden, free-spending euro partners. Part of the problem is that as countries go their own way, they are each arguing that they are acting for the greater global good.
When Britain slashed its budgets recently, its new government said that was the only way to restart growth and bring back the confidence of investors. Others around Europe are doing the same, arguing that a strong Europe is in the interest of the global economy.
The Obama administration has gone in the opposite direction: deficit spending. Mr. Obama argued the other day that his No. 1 priority, for the good of the country and the world, was to restore growth quickly, and that European-style austerity programs would run the risk of putting more people out of work. And the Chinese have refused to let their currency appreciate in value, despite huge trade surpluses, saying they have to worry first about job creation and stability.
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David Cameron urges China to correct trade imbalance
David Cameron said that China's economic power gave it economic and political "responsibilities"
Continue reading the main story
Global Economy
Has the G20 lost its momentum?
Are US moves storing up trouble?
US drops target amid dollar spat
'No talk' of EU help for Ireland
UK Prime Minister David Cameron has stepped into the row over "currency wars" with a warning that China should act to correct its trade imbalance.
In a speech at Peking University, he said that China's export success was a potential threat to other economies.
China's huge trade surplus is in part attributed to the weakness of the yuan, which helps the country's exporters.
But ahead of the G20 summit, China's President Hu Jintao said countries must "face their own problems".
Latest figures show that China's trade surplus rose to $27bn (£17bn) in October, despite rapid economic growth in the country starting to cool.
Critics blame Beijing for keeping the yuan artificially low, which helps boost exports and has led to China building up massive amounts of foreign reserves.
Mr Cameron, who is leading a trade mission to the country, said he wanted "to make the positive case for the world to see China's rise as an opportunity, not a threat".
'Responsibilities'
He said China can play a leading role in dealing with economic problems as the world emerges from recession.
But China's increasing economic muscle has given it "responsibilities" both economically and politically, said the prime minister.
Continue reading the main story
"
Start Quote
The recent crisis was certainly not caused by China's currency"
Cui Tiankai
China vice foreign minister
In an apparent reference to the low valuation of the yuan, Mr Cameron said: "The truth is that some countries with current account surpluses have been saving too much while others like mine with deficits have been saving too little.
"And the result has been a dangerous tidal wave of money going from one side of the globe to another.
"We need a more balanced pattern of global demand and supply, a more balanced pattern of global saving and investment."
Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.
It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.
The issue will be a key topic at the G20 summit in South Korea on Thursday and Friday.
Interference
However, in an interview with China's official Xinhua news agency, President Hu Jintao told countries to "face their own problems" rather than casting blame.
Separately, China's vice foreign minister Cui Tiankai rejected foreign interference in what Beijing regards as an internal matter.
"The recent crisis was certainly not caused by China's currency," he said in an interview.
An he warned that the summit should not descend into a row about currencies. If either side "chooses a confrontational approach, I think everybody will come out as losers", he said.
David Cameron said that China's economic power gave it economic and political "responsibilities"
Continue reading the main story
Global Economy
Has the G20 lost its momentum?
Are US moves storing up trouble?
US drops target amid dollar spat
'No talk' of EU help for Ireland
UK Prime Minister David Cameron has stepped into the row over "currency wars" with a warning that China should act to correct its trade imbalance.
In a speech at Peking University, he said that China's export success was a potential threat to other economies.
China's huge trade surplus is in part attributed to the weakness of the yuan, which helps the country's exporters.
But ahead of the G20 summit, China's President Hu Jintao said countries must "face their own problems".
Latest figures show that China's trade surplus rose to $27bn (£17bn) in October, despite rapid economic growth in the country starting to cool.
Critics blame Beijing for keeping the yuan artificially low, which helps boost exports and has led to China building up massive amounts of foreign reserves.
Mr Cameron, who is leading a trade mission to the country, said he wanted "to make the positive case for the world to see China's rise as an opportunity, not a threat".
'Responsibilities'
He said China can play a leading role in dealing with economic problems as the world emerges from recession.
But China's increasing economic muscle has given it "responsibilities" both economically and politically, said the prime minister.
Continue reading the main story
"
Start Quote
The recent crisis was certainly not caused by China's currency"
Cui Tiankai
China vice foreign minister
In an apparent reference to the low valuation of the yuan, Mr Cameron said: "The truth is that some countries with current account surpluses have been saving too much while others like mine with deficits have been saving too little.
"And the result has been a dangerous tidal wave of money going from one side of the globe to another.
"We need a more balanced pattern of global demand and supply, a more balanced pattern of global saving and investment."
Critics, especially in the US, have called for tariffs on Chinese imports unless the yuan is allowed to appreciate.
It is feared that other countries will rush to allow currency devaluation to also make their exports more competitive.
The issue will be a key topic at the G20 summit in South Korea on Thursday and Friday.
Interference
However, in an interview with China's official Xinhua news agency, President Hu Jintao told countries to "face their own problems" rather than casting blame.
Separately, China's vice foreign minister Cui Tiankai rejected foreign interference in what Beijing regards as an internal matter.
"The recent crisis was certainly not caused by China's currency," he said in an interview.
An he warned that the summit should not descend into a row about currencies. If either side "chooses a confrontational approach, I think everybody will come out as losers", he said.
