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SUNDAY, JUNE 20, 2010 U.S. officials welcome currency statement currency from A1
advised the Chinese government on the currency issue, “but the question is how far they will let the yuan rise — and how fast.” A strong yuan, however, is not
REUTERS
A strong yuan is not expected to hit American pocketbooks too hard because of competition from exporters such as Mexico and India.
expected to hit American pocket- books too hard, because even though Chinese exports — think Wal-Mart, Best Buy and Toys R Us — could rise in price, cheap prod- ucts from other big exporters
such as Mexico and India could replace them on store shelves. China’s announcement, com-
municated in advance to U.S. offi- cials, was immediately welcomed by the White House, which saw it as a vindication of President Oba- ma’s nonconfrontational policy of trying to quietly negotiate over the exchange rate. The Obama administration had delayed a re- port on China’s currency that had been due in April, for example, to
give Beijing more time.
‘Constructive step’ Obama, in a statement, called the announcement “a construc- tive step that can help safeguard the recovery and contribute to a more balanced global economy.” Treasury Secretary Timothy F. Geithner added that “vigorous implementation would make a positive contribution to strong and balanced global growth.”
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But critics remained skeptical, noting that China has sent sig- nals before about a currency ap- preciation — usually ahead of an international meeting or dead- line — and then done nothing. The most recent example came in April, when senior Chinese offi- cials told reporters on the eve of President Hu Jintao’s visit to Washington for a nuclear security summit that it was time to allow more flexibility in the currency. Hu attended the summit, and the currency was left unchanged. “This vague and limited state- ment of intentions is China’s typ- ical response to pressure,” said Sen. Charles E. Schumer (D-N.Y.), who has co-authored legislation that would impose tariffs on Chi- nese goods if the yuan does not appreciate. “We hope the Chinese will get more specific in the next few days,” Schumer said in a state- ment. “If not, then for the sake of American jobs and wealth, which are hurt every day by China’s practices, we will have no choice but to move forward with our leg- islation.”
Benefits at home
Economists say that of all the potential beneficiaries of a stron- ger yuan, China is at the top of the list. In Beijing, the central bank
statement hinted at this realiza- tion, saying that while the fixed exchange rate helped China weather the global financial melt- down that started in 2008, the country’s economy has recovered enough to allow the yuan to rise. It means that China’s economy, growing at 11 percent, is in dan- ger of overheating and that in- flation is increasing. Allowing the yuan to appreciate should slow inflation by making imports cheaper for the Chinese con- sumer. Moving away from a cheap yu- an policy, designed when China, as the world’s factory, relied on its exports for economic growth, would also help China’s macro- economic situation, Bergsten said. China devotes as much as
10 percent of its gross domestic product to buying U.S. Treasury bonds as part of a plan to keep the value of the yuan low. Now, Bergsten said, that money can be freed up to flow into the pockets of China’s workers or into more loans for Chinese businesses or into improving health care and education. China had joined other G-20
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nations last year in pledging to help “rebalance” the global econ- omy. For China, the world’s fast- est-growing economy, that would mean taking steps to boost local consumption, import more and export less. Allowing its currency to appreciate would be one im- portant tool to achieve those ends. “The big question is whether this is a symbolic move or a true shift,” said Eswar Prasad, a Cor- nell University economist who follows the issue closely. “In any event, it signals recognition by Chinese officials that a more flex- ible exchange rate is in China’s own interest.” Until now, China has been re-
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luctant to change its currency, with the leadership often appear- ing divided over the issue and making conflicting public state- ments. Chinese leaders expressed concern about the effect a cur- rency appreciation would have on its export sector and its many small factories, particularly in Guangdong province, which has been hit by a wave of labor unrest as workers demand higher wages. China’s central bank, which is responsible for buying and sell- ing world currencies and thus regulating the yuan’s value, is thought to have long favored more flexibility. But the powerful Commerce Ministry has vigor- ously opposed any currency change, with ministry officials painting the strong currency as a nationalist issue.
richburgk@washpost.com pomfretj@washpost.com
Pomfret reported from Washington. Staff writer Howard Schneider in Washington also contributed to this report.
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