Obama vows to get tough with China on currency

[Sridhar]

Obama vows to get tough with China on currency


President Barack Obama vowed to "get much tougher" with China on trade rules, including currency rates, to ensure that U.S. goods do not face a competitive disadvantage.
With U.S.-Chinese relations under pressure over a host of issues, including U.S. arms sales to Taiwan and Obama's planned meeting with Tibet's spiritual leader, the Dalai Lama, Obama said his administration was pushing China and other countries to enforce trade rules and open their markets.
"The approach that we're taking is to try to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways," Obama told a meeting with Senate Democrats on Wednesday.
"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price."
But Obama insisted he would not take a protectionist stance toward China, the world's third-largest economy, warning that "to close ourselves off from that market would be a mistake".
Republican Senator Charles Grassley urged Obama to formally label China a currency manipulator to induce Beijing to raise the value of its yuan. Obama so far has resisted that step.
U.S. manufacturers have complained for years Beijing's currency policies give Chinese companies an unfair price advantage. China says exchange rate policy is an internal matter.
YUAN SEEN AS UNDERVALUED
The Peterson Institute for International Economics estimated China's yuan was undervalued by about 30 percent against all world currencies and about 40 percent against the dollar.
The Washington think-tank also said four other East Asian economies -- Hong Kong, Malaysia, Taiwan and Singapore -- needed to let their currencies rise in value.
Obama has twice declined to label China as a currency manipulator, which would escalate the issue to the World Trade Organization, but faces a third decision on that issue in April.
Finance ministers and central bank governors of the Group of Seven rich nations will discuss China's currency this weekend in Canada, a U.S. Treasury official said.
"The Chinese currency issue is on everybody's mind. It's an issue for everybody," the official said.
Forward contracts for the yuan edged lower early on Thursday, showing the market expects pressure on China to allow the currency to appreciate could have the opposite effect.
One-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.6490 from 6.6410 bid late on Wednesday. A higher bid means lower implied yuan appreciation versus the dollar over the coming year.
The spate of disagreements have led markets to expect a hardening of China's position, making it less likely to accede to pressure to allow the yuan to gain.
"China is unlikely to make significant concessions to U.S. pressure on the yuan, in particular at the current time when the two countries are involved in a slew of disputes over issues including U.S. arms sales to Taiwan," said a Chinese state-owned bank dealer in Beijing, who asked not to be named.
"If the United States takes a tougher line on the yuan, it may prove to be counterproductive."


http://www.deccanchronicle.com/international/obama-vows-get-tough-china-currency-500

 

[Yusuf]

Yeah about time China opens up it currencies. It wants to enjoy all the benefits of free trade practices but not follow them. Well as said in the report, if the Chinese currency is at least 40% of its real value, its GDP will come down dramatically. As it is the Chinese provincial governments fake GDP figures. Wonder where the Chinese actually stand?

 

[amoy]

Well as said in the report, if the Chinese currency is at least 40% of its real value, its GDP will come down dramatically.

Don't get your point. If it's true that China's Yuan (RMB) is undervalued by 40% against USD, GDP should have been SIGNIFICANTLY higher in USD.

Chinese provincial governments fake GDP figures.

Beijing won't take provincial statistics for granted and will doublecheck

 

[Yusuf]

Don't get your point. If it's true that China's Yuan (RMB) is undervalued by 40% against USD, GDP should have been SIGNIFICANTLY higher in USD.

Increase your currency by 40% and see your cheap sales go down in the world market. There goes your GDP.

 

[amoy]

Exports have continued to amount to about one-third or more the size of China’s GDP. --->
http://iasworldtrade.com/china/china-exportgdp-ratio.html

Agree with u that abrupt appreciation of RMB is going to hurt the economy greatly. However gone were the days when China could count on export as one of growth engines. Now stimulus for domestic consumption and public spending is in full swing.

 

[no smoking]

Increase your currency by 40% and see your cheap sales go down in the world market. There goes your GDP.

I doubt it.

As we know, china is playing a role of finished factory in the world economy.
On one hand, china is importing raw materials, product parts from south east asia, latin america, africa, russia and high-tech product from developed countries; on the other hand, china exports finished product to USA and Europe. If china appriciate its currency, its exportation will be hurt, but how much is a question because a relative big part of impact will be offset by the decrese of cost in importation.

Meanwhile, I wonder if obama's word is just political show. The fact is that china and USA has no competetion in the market: china focus on low end production while USA is in high-tech production and service. Even if china's product price was increased, the only thing USA can do is just turning to other manufacturers such as mexico, vietnam. USA itself won't get much benefit from it.

 

[Sridhar]

China's currency manipulation: US floats on hope

06 February 2010


US officials may have adopted the 'hopeful' route to resolving the thorny problem of getting China to stop manipulating its currency, with Treasury secretary Timothy F Geithner saying Thursday that he thought it ''quite likely'' that Beijing would allow its currency to appreciate vis-à-vis the dollar. His comments come in the wake of comments by president Barack Obama that fair valuation of currencies was imperative for the US economy, as it would make the country's exports more competitive and help lower massive trade deficits, in particular with China.

"I think it's actually quite likely [China] will move. I think they recognize it's important to them, in their interest as well," Geithner told the Senate Budget Committee.
The issue of China's overvalued currency, known as the yuan or the renminbi, is moving centre stage with the US administration which is seeking ideas to counter the ''jobless recovery'' currently under way in the domestic economy. Indeed, just released figures for January this year reveal that the US economy shed another 20,000 jobs, though other muddled statistics reveal that unemployment may have improved marginally to 9.7 per cent, from 10 per cent.
In all, the US economy has lost 8.4 million net jobs since the recession began officially in December 2007.
In his State of the Union address, Obama vowed to double US exports by 2014. Economists are in general agreement, however, that this target won't be achieved battling a cheap yuan.
Geithner's comments were made only a day after Obama vowed to "get much tougher" on China over this issue "to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage."

http://www.domainb.com/economy/worldeconomy/20100206_china_currency.html

 

[Sridhar]

US builds pressure on China over currency manipulation

04 February 2010


Beijing: China responded Thursday to an accusation from the United States that it was artificially deflating the value of its currency by saying it would not bow to pressure from the United States to revalue its currency. US president Barack Obama had said Wednesday that he would like to ensure that China did not keep its currency at an artificially low level as it gave it an unfair advantage in exports.

File photoSpeaking at a regular news conference here a Chinese foreign ministry spokesman said that ''wrongful accusations and pressure will not help solve this issue.''
He was responding to remarks made by president Obama in Washington on Wednesday at a meeting with Democratic senators.
The United States, Obama said, has ''to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage.''
Economists are broadly agreed that the Chinese currency, the renminbi (RMB, also known as the yuan), is undervalued between 25-40 per cent against the dollar and other currencies. Under constant pressure from the preceding Bush administration the Chinese government decided to do away with the yuan's peg to the dollar and allow the currency to float in a narrow band against the dollar and other currencies in July 2005.
The effect was immediate with the renminbi appreciating 21 per cent.

http://www.domainb.com/economy/worldeconomy/20100204_currency_manipulation.html

 

[Sridhar]

IMF puts China's currency issue on centre stage

02 March 2010

Washington: Inspite of China's constant attempts to discourage any discussion regarding revaluation of its currency the renminbi, also known as the yuan, the International Monetary Fund has now brought the matter centre stage saying greater flexibility for the yuan was necessary to underpin a recovery in the global economy.
In blunt language, the IMF labelled the Chinese currency as being "substantially undervalued."
The IMF's statement was part of an assessment of G20 major economies.
"The Chinese renminbi has depreciated in real effective terms in tandem with the US dollar and is assessed to be substantially undervalued from a medium-term perspective," the IMF said in a report prepared for a G20 ministers meeting in Seoul, South Korea, at the weekend but only released on Monday.
The assessment was not inconsistent with earlier calls from the organisation charging the Chinese exchange rate as being too low and significantly undervalued against the US dollar.
The IMF is an organisation formed with a stated objective of stabilizing international exchange rates and facilitating development.

http://www.domainb.com/organisation/imf/20100302_currency_issue.html

 

[Sridhar]

India, Brazil to take on China on currency valuation

21 April 2010


The upcoming meet of G-20 finance officials this week will see Indian and Brazilian central bank governors fully backing the American stand on Chinese currency revaluation. Though the recently concluded BRICS summit at Brasilia this past week passed off smoothly enough for the Chinese with host Brazil and other participants Russia, India and South Africa too polite to broach the issue one-on-one with visiting Chinese president Hu Jintao, who in any case made an early exit with a massive earthquake striking parts of China, the gloves are likely to be off at Washington this week.

G-20 finance ministers and central bank governors will meet in Washington on Friday to discuss financial regulatory reform. They will also work on a plan to avoid a return to global current account imbalances that contributed to the recent financial crisis.
Firing a warning shot across China's bows was Indian central bank governor D Subbarao, who said exports from China to his country had grown faster than Indian exports to China, ''and that obviously is a reflection of differences in the exchange-rate management,'' he told reporters in Mumbai.
Also in the fray was Brazil's Henrique Meirelles who told a senate hearing yesterday in Brasilia it was ''absolutely critical'' that China should let its currency appreciate. "I think it's absolutely critical for the equilibrium of the world economy," he said when queried about the likely global impact should China revalue its currency.

US president Barack Obama has already accused China of maintaining its currency at ''artificial'' rates, and has just held back from officially declaring the communist giant as a currency manipulator through a Treasury Department report. Publication of the report was held back by the American government in the interest of diplomacy as Chinese president Hu Jintao was visiting Washington to attend a nuclear security summit in April and it was decided to give diplomacy a chance.
Finance officials from G-20 nations will discuss outlook for the global economy in Washington for three days starting 22 April.
Reserve Bank of India governor Subbarao said India will give its opinion if the issue is raised in the G-20 meeting. ''When it is discussed we will certainly give our opinion or view on the subject,'' he said.
''If China revalues the yuan, it will have a positive impact on our external sector,'' Subbarao said. ''If some countries manage their exchange rate and keep them artificially low, the burden of adjustment falls on some countries that do not manage their exchange rate so actively.''
After allowing it to appreciate a paltry 21 per cent in three years, China has pegged its currency at about 6.83 against the dollar since July 2008.
Finance officials from Brazil and India would certainly have cause to worry as the Brazilian real has gained 28 per cent against the yuan in the past year, even as the rupee has climbed 13 per cent.
India imported $14.9 billion of goods in the six months to September 2009 from China, even as it own exports to this communist-ruled nation amount to a bare $3.9 billion over the same period.
Brazil has ample cause to worry as China's exports to countries in its immediate neighbourhood - Argentina, Uruguay and Paraguay- went up 7.3 per cent to $4.8 billion in the first eight months of 2009 as compared to two years earlier, even as Brazilian exports to same countries fell 18 per cent to $9.6 billion over the same period.
So far China is putting up determined resistance in the face of concerted international pressure to revalue the yuan. Chinese president Hu Jintao told Obama in course of the nuclear summit that his country wouldn't yield to ''external pressure'' in deciding when to adjust the yuan.

http://www.domainb.com/economy/worldeconomy/20100421_currency_valuation_oneView.html

 

[sob]

Effects of Yuan Rising

There is an interesting analysis by the WSJ if the Chinese Govt. would allow the Yuan to rise against the Dollar. US Treasury Bonds would be hit, currencies in South East Asia and their stock markets would rise and so would the price of the commodities.

Based on the experience of 2005, a rising yuan could boost other Asian currencies, lift commodity prices and hurt U.S. Treasurys.Domestic-focused Chinese stocks are also likely to rise.
With China being an even bigger economic force throughout the global economy, sucking up commodities and dominating exports, the market effects could be bigger this time around.

Asian countries, among the most likely to be prime beneficiaries of a rising yuan, have already strengthened in anticipation of a move, and more gains are likely. The dollar has lost 6.8% this year against the Malaysian ringgit, 4.8% against the won and 1.7% against the heavily managed Taiwan dollar. On Wednesday, the Monetary Authority of Singapore re- vised up its targeted trading range for the Singapore dollar by about 1.3% and said it will allow a gradual appreciation.

Governments there have spent the past year straining to keep their currencies from rising in order to maintain their competitiveness against China. Managing these exchange rates has meant aggressively selling their own currencies and buying dollars.

Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley, says the currencies of South Korea, Taiwan and Malaysia are among those most likely to get a lift from the yuan.

"If China allows more currency strength, then other countries in the region that have strong trade with China, or compete with China, would be more comfortable allowing their currencies to rise," Ms.
Drossos says. The euro "is most at risk," says Ms. Drossos. After buying dollars through currency-market intervention, central banks diversify by selling some of those dollars and buying euros.
Reduced intervention could lead to reduced demand for the euro. Commodity-related currencies like the Australian dollar are also likely losers.

Many expect a yuan revaluation to lift commodity prices as it did in 2005, when crude-oil prices jumped nearly 15% in the month after the news.With a stronger yuan, imported raw materials already in high demand in China-- such as crude and copper-- would become cheaper there.That could allow increased demand from Chinese firms.

http://epaper.livemint.com/ArticleImage.aspx?article=20_04_2010_020_003&mode=1

 

[ajtr]

India, Brazil Back U.S. Position on Yuan Before G-20 (Update1)

April 21 (Bloomberg) -- Central bank governors in India and Brazil backed a stronger Chinese yuan, siding with U.S. President Barack Obama before a meeting of the Group of 20 nations this week.
Exports from China to India have grown faster than Indian shipments to its northern neighbor "and that obviously is a reflection of differences in the exchange-rate management," Reserve Bank of India's Duvvuri Subbarao told reporters in Mumbai yesterday. Brazil's Henrique Meirelles told a senate hearing yesterday in Brasilia it was "absolutely critical" that China should let its currency appreciate.
Obama, who considers the yuan "undervalued," is seeking to gain broader support from finance officials of the G20, who will discuss outlook for the global economy in Washington for three days starting April 22. Speculation that China may scrap the yuan's peg to the dollar intensified this month after Treasury Secretary Timothy F. Geithner delayed a report that could brand the nation a currency manipulator.
"This meeting will be the first test by the U.S. to use a multilateral forum to press China into action on its currency," Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. wrote in a research note yesterday.
The discussions will include a range of topics including currencies and a communiqué will be released on April 23, a U.S. Treasury Department official, who declined to be identified, said yesterday. Bank Indonesia Deputy Governor Hartadi Sarwono declined to discuss his position before the meeting and the Bank of Korea also preferred not to comment when contacted yesterday.
Giving Opinions
India will give its opinion if the issue is raised in the G20 meeting, Subbarao said. "When it is discussed we will certainly give our opinion or view on the subject," he said.
"If China revalues the yuan, it will have a positive impact on our external sector," Subbarao said. "If some countries manage their exchange rate and keep them artificially low, the burden of adjustment falls on some countries that do not manage their exchange rate so actively."
China has pegged its currency at about 6.83 against the dollar since July 2008, after allowing it to rise 21 percent in the previous three years. China won't revalue until the middle of the year when it can see evidence of sustainable growth and inflation, Win Thin, a New York-based strategist at Brown Brothers Harriman & Co. said this week. Calls for revaluation will delay the process, he said.
Twelve-month non-deliverable yuan forwards traded at 6.622, reflecting bets the currency will strengthen 3.1 percent from the spot rate. The Brazilian real has gained 28 percent against the yuan in the past year, while the rupee climbed 13 percent.
India's Imports
India imported $14.9 billion of goods in the six months to September 2009 from China, more than double the exports from the second-ranked U.S. India shipped $3.9 billion of goods to China in the same period.
U.S. lawmakers have urged Obama to step up pressure on China, accusing officials in Beijing of keeping the currency artificially weak to gain export advantage. Chinese President Hu Jintao told Obama on April 13 in Washington that the country wouldn't yield to "external pressure" in deciding when to adjust the yuan.
The Chinese government will decide on the valuation of its currency and is seeking a stable yuan to control speculative capital inflows, Yao Jian, spokesman for the Ministry of Commerce, told reporters April 15.
Brazil Versus China
China boosted exports to Argentina, Uruguay and Paraguay, members of the Brazil-led Mercosur trade bloc, by 7.3 percent to $4.8 billion in the first eight months of 2009 from two years earlier, while Brazilian sales to its neighbors fell 18 percent to $9.6 billion during the same period.
Chinese-made products such as tires and stereo speakers are the target of 26 Brazilian anti-dumping measures, more than any other country and nearly half of all 68 in place, according to Brazil's Trade Ministry. Soy and iron ore accounted for 66 percent of $20 billion in Brazilian sales to China last year.
"It's absolutely critical that China appreciate its currency to ensure equilibrium in the global economy," said Brazil's Meirelles.
--Editors: Arijit Ghosh, Sandy Hendry.
To contact the reporter on this story: V. Ramakrishnan in Mumbai at [email protected]; Anoop Agrawal in Mumbai at [email protected]; Andre Soliani Costa in Brasilia at [email protected].