Wen hints at yuan move
By Olivia Chung and Chris Stewart
HONG KONG - Chinese Premier Wen Jiabao, under renewed pressure to let China's
currency appreciate, on Sunday again rejected such demands from the United
States and others while offering an olive branch to trading partners with a
pledge to pursue currency reforms further.
The yuan, also known as the renminbi, "has not been undervalued", Wen told a
press conference open to local and foreign journalists after the closing
meeting of the annual session of the National People's Congress - the national
legislature. Nevertheless, China will push ahead with reforming the exchange
rate formation mechanism, he said.
That statement was "notably stronger - signaling China’s commitment to a
flexible exchange rate regime - than any ever
made by Chinese authorities since the new renminbi peg versus the US dollar was
effectively in place around July 22, 2008," said Morgan Stanley economist Qing
Wang.
Wen's made his remarks after US President Barack Obama last Thursday pressed
China to embrace a "market-oriented" exchange rate for the yuan, saying the
move is "an essential contribution" to a global rebalancing effort. A US
Treasury Department report due out on April 15 may indicate whether the United
States will term China a "currency manipulator". The US and the European Union
claim that China holds down the value of its currency to benefit unfairly its
own exporters.
Wen said the stable yuan had played an important role in helping the global
economy recover from the worst financial crisis in decades, adding that 16 of
37 countries monitored had increased their exports to China last year.
China's imports from Germany rose to a record high 76 billion euros (US$104
billion) in 2009 last year, and while European Union exports to China fell
15.3%, that was less than the 20.3% decline in the EU's total exports, he said.
Imports from the US dipped only 0.22% last year, against a 17% drop in total US
exports.
At the same time, China's total exports fell by 16%, but imports declined only
11% and its trade surplus decreased US$102 billion, Wen said.
China eased the fixed peg of the yuan to the US dollar in July 2005, when it
said the currency would in future be valued against a basket of currencies,
including the dollar.
"We did not depreciate the yuan between July 2008 [as the global financial
crisis gathered pace] and February 2009, the worst time of the world economy,
but it appreciated in real terms by 14.5%," Wen said.
China opposed accusations and even forceful measures from other countries that
press for the yuan to appreciate, as they do not benefit exchange rate reform,
he said. "A country's exchange rate policy and its exchange rates should depend
on its national economy and economic situation.''
Morgan Stanley's Wang said the yuan exit from the US dollar peg "will take
place, most probably in the summer of this year, potentially involving a modest
one-off revaluation of 2-3%'' while cumulative appreciation against the
greenback could reach 4-5% in 2010.
Wen, addressing China's stance regarding recent measures taken against its
exports, said it was understandable that some countries moved to shore up
exports as they tried to recover from the financial crisis.
"But what I cannot understand is some countries devaluing their own currencies
while on the contrary pushing for the appreciation of other currencies. I think
it is protectionism," he said.
Over the past year, Washington has acted to curb imports of Chinese-made tires
and steel pipes, on claims by US manufacturers that they were being dumped at
below market prices. Western governments also limit the range of
high-technology products that can be sold to China.
Wen said he hoped the US and Europe would acknowledge China's market economy
status and lift bans on high-tech exports to China.
"Although China has become the largest exporter, 50% of its exports are
processing trade, or 60% of its exports are generated from foreign enterprises
or joint ventures. Therefore trade protectionism also has a negative impact on
foreign companies," he said.
Wen also addressed the core issue in domestic economic policy - when to pull
back from economic stimulus which since November 2008 has helped to drive the
country's economic growth back up towards 10% after slipping when the global
economic crisis savaged export earnings. International Monetary Fund chief
Dominique Strauss-Kahn warned in January that the West, where growth is also
being buttressed by extra government spending, faces a double-dip recession if
economic stimulus packages are withdrawn too early.
A balance was required between maintaining fast and steady economic growth,
economic structure adjustments and inflation expectations, Wen said.
"We must accomplish all three tasks at the same time to ensure a bright future
for the Chinese economy. Only in this way can we avert the risk of a double-dip
recession," he said. "Inflation with unfair income distribution and corruption
will affect social and political stability.''
Beijing's stimulus package includes 4 trillion yuan (US$586 billion) in
spending, much of it to be directed towards infrastructure projects, and 9.6
trillion yuan of bank loans.
Zhao Xijun, finance professor of the Renmin University of China, said, "A
double dip is possible if the government exits from the stimulus package too
early, as a lot of Chinese enterprises are operating with government support
and it will be hard for them to adapt to the new situation. The government must
continue its proactive fiscal policy and moderately relaxed monetary policy."
Stimulus spending would remain strong to keep the economy afloat for the rest
of the government's term, which ends in early 2013, said Pauline Loong, senior
vice president in charge of China policy and risk research at CIMB-GK
Securities (HK) Ltd.
"We expect the government to move quickly in the coming months to develop more
funding channels for businesses in the real economy," she said.
Wen highlighted the "unbalanced development" between urban and rural areas,
saying the country had, despite its recent development, "a large population and
a weak economic foundation."
"We are truly at the primary stage of development," he said. The country has to
wait till the middle of this century to become a developed country of a medium
level, and it might take 100 years or more to realize modernization.
Loong said Wen's speech highlighted "in unusual detail for what is supposed to
be a wrap-up of domestic policies, the ways in which Chinese policy (including
its currency policy) has been to everyone's benefit."
Olivia Chung is a senior Asia Times Online reporter. Chris
Stewart is Asia Times Online business editor.
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