May 25, 2010Geithner Confident of Case for Stronger Yuan
U.S. Treasury Secretary Timothy F. Geithner said he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar.
Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said in an interview with Bloomberg Television in Beijing today. He welcomed President Hu Jintao’s pledge yesterday of steady and gradual changes to the nation’s exchange-rate system.
Hu made “a very strong commitment to continue the broader reform agenda,” Geithner said, adding that strengthening Chinese domestic demand and rebalancing the nation’s growth is important to China, the U.S. and the world.
Geithner’s confidence contrasted with the biggest decline in yuan forwards in 15 months as investors bet that Europe’s sovereign-debt crisis will encourage China to delay ending a 22- month-old currency peg to the dollar. He spoke on the second and final day of the Strategic and Economic Dialogue, an annual summit that brought about 200 U.S. officials to Beijing.
“What markets are taking away from these talks is that we are going to see a lot more delay in ending the peg,” said Jinny Yan, an economist at Standard Chartered Bank in Shanghai. “There was a huge market reaction at the conclusion of these talks and I would say, in a nutshell, disappointment.”
Forwards Slide
Non-deliverable forwards dropped 0.7 percent to 6.7901 per dollar as of 5:46 p.m. in Hong Kong, the biggest loss since Feb. 17, 2009, reflecting bets the currency will strengthen 0.6 percent in the next year.
China has kept the yuan pegged to the dollar as a crisis- fighting policy, fueling complaints from trading partners and U.S. lawmakers that the world’s biggest exporting nation has an unfair advantage in global commerce.
In his closing statement at the talks, Geithner said both countries have committed to support Europe’s efforts to combat its crisis.
“We agreed to support the strong programs of policy reforms and financial support now being undertaken by the nations of Europe,” Geithner said. His next destination is Europe and two days of meetings in London, Berlin and Frankfurt to discuss the $1 trillion rescue package intended to stem contagion from Greece’s woes.
European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner said earlier in Beijing today.
Soybeans, Financial Services
As the talks closed, officials in Beijing highlighted agreements in areas ranging from financial services to aiding U.S. soybean exports to China.
China agreed to submit a revised offer by July to join a World Trade Organization government procurement pact, changed rules for an “indigenous innovation” policy that U.S. businesses are concerned may pose a trade barrier, and will let foreign investors trade stock-index futures, the U.S. said in a statement.
The nations will continue “intensive discussions” on the exchange rate in the run-up to the Group of 20 nations’ leaders’ summit, it said.
Geithner told Bloomberg that his European agenda will cover next month’s G20 meetings in South Korea and Canada, which will center on efforts to help the international financial system heal after surviving the worst recession since World War II.
He said he will discuss “strengthening the consensus on how to make sure we’re reinforcing this global recovery.” A key focus will be on strengthening global financial standards to ensure stability, he said.
‘Encouraging’ Talks
Geithner said discussions in China have been “encouraging” and “promising” on foreign-exchange policy and other issues. In his official statements, he reiterated that it will be “China’s choice” when to change yuan policy.
Allowing the exchange-rate mechanism “to reflect market forces is important not just to give China the flexibility necessary to sustain more balanced economic growth with low inflation but also to reinforce incentives for China’s private sector to shift resources to more productive higher-value-added activities that will be important to future growth.”
Geithner also used his official statements to say the two sides made progress in providing “a more level playing field for U.S. firms in China.” Chinese officials are “sensitive and responsive” to the Obama administration’s concerns about the innovation policies, Geithner said.
In a separate interview with CNBC, Geithner said he didn’t expect any quid pro quo related to China’s exchange-rate policy, such as looser U.S. controls on technology exports. He also said the U.S. economic recovery is being led by private investment and exports, adding to the “complementary” relationship between the two economies.
http://preview.bloomberg.com/
Geithner told Bloomberg that his European agenda will cover next month’s G20 meetings in South Korea and Canada, which will center on efforts to help the international financial system heal after surviving the worst recession since World War II.
He said he will discuss “strengthening the consensus on how to make sure we’re reinforcing this global recovery.” A key focus will be on strengthening global financial standards to ensure stability, he said.
‘Encouraging’ Talks
Geithner said discussions in China have been “encouraging” and “promising” on foreign-exchange policy and other issues. In his official statements, he reiterated that it will be “China’s choice” when to change yuan policy.
Allowing the exchange-rate mechanism “to reflect market forces is important not just to give China the flexibility necessary to sustain more balanced economic growth with low inflation but also to reinforce incentives for China’s private sector to shift resources to more productive higher-value-added activities that will be important to future growth.”
Geithner also used his official statements to say the two sides made progress in providing “a more level playing field for U.S. firms in China.” Chinese officials are “sensitive and responsive” to the Obama administration’s concerns about the innovation policies, Geithner said.
In a separate interview with CNBC, Geithner said he didn’t expect any quid pro quo related to China’s exchange-rate policy, such as looser U.S. controls on technology exports. He also said the U.S. economic recovery is being led by private investment and exports, adding to the “complementary” relationship between the two economies.
http://preview.bloomberg.com/
