September 3 2010
President Barack Obama’s top economic adviser will arrive for talks in Beijing this weekend, just as the simmering argument about the Chinese currency and global imbalances threatens to heat up again.
Lawrence Summers, director of the US National Economic Council, is part of a White House delegation that includes deputy national security adviser Thomas Donilon. They will focus on foreign policy as well as economic issues in talks with Chinese officials.
The long dispute about the renminbi diminished over the summer after the
The decision, which was welcomed at the time in Washington, followed intense pressure from the White House, which argued that China’s currency was significantly undervalued.
Since then, however, the Chinese government – facing heavy domestic lobbying by the export sector against a stronger currency – has let the renminbi rise by only 0.3 per cent against the dollar, raising the risk of fresh criticism in the US, especially from Congress.
“The approaching November [US] elections and the need for politicians to search for some kind of scapegoat could put China in a precarious position and could lead to a rise in harmful trade rhetoric,” said Pierre Gave, head of research at the GaveKal consultancy in Hong Kong.
In June, the Obama administration persuaded frustrated Democratic legislators to postpone pushing ahead with a bill that would target China for its alleged currency undervaluation because the White House wanted China’s support for a UN resolution targeting Iran, which it received.
But since then the US trade deficit has jumped sharply – almost half of which is attributable to a surge in Chinese imports.
Yesterday’s anaemic US employment figures, showing that another 27,000 manufacturing jobs were lost in August, raises the chance that Charles Schumer, the New York senator sponsoring the China currency bill, will seek to push it through the Senate when it returns in 10 days time.
“The bill itself would only be symbolic since it would urge the Obama administration to do something that it doesn’t want, or have, to do,” says Fariborz Ghadar, head of global business studies at Penn State University. “But it would lead to a real decline in relations with China.”
The potential for a new trade dispute has grown amid signs that global macroeconomic imbalances could be getting worse again. Chinese officials could argue earlier this year that the big external surpluses of recent years were a thing of the past. Indeed, a rare trade deficit was recorded in March.
However, the trade surplus has rebounded and economists are expecting another large monthly surplus for August above $25bn (€19bn, £16bn) when figures are out next week. At the same time, the US trade deficit has begun to widen recently. Some analysts foresee a further deterioration in July’s trade data next week.
Although the US Congress has discussed a number of bills in recent years that aimed to take action against China over is currency policy, analysts believe that legislation might have a realistic chance of passing this time.
Ever since Beijing unveiled its new foreign exchange policy in June, officials have stressed that there would be no rapid exchange-rate movements. Beijing has also pushed back against fresh pressure from the US by raising doubts about the dollar’s position as the main global reserve currency.
In an article yesterday, Hu Xiaolian, central bank deputy governor, wrote of the potential risks to China’s foreign exchange reserves from a loss of confidence in the US currency.
“Once a reserve currency becomes unstable, there will be quite large depreciation risks for assets,” she wrote.
“A diversified international currency system will be more conducive to international economic and financial stability.”
The re-emergence of the currency issue comes after sharp exchanges between Washington and Beijing recently about US-led naval exercises off South Korea and over disputed islands in the South China Sea.
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September 3, 2010
Obama adviser Summers to visit China Sept. 4
The White House said on Thursday that President Barack Obama's top economic adviser will visit China from Saturday for three days of meetings.
The White House said in a statement that National Economic Council Director Larry Summers and Deputy National Security Adviser Thomas Donilon would travel to Beijing on Sept. 4.
The two will meet with Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo and "will discuss a wide range of issues touching on bilateral and international issues," the White House said. It provided no further details on what topics would be raised during the visit.
Obama has urged China to allow the foreign exchange value of its yuan currency be set by market forces. He also said it could appreciate significantly, after China announced in June that it would allow more yuan flexibility.
Many U.S. lawmakers say China holds the yuan at unfairly low levels against the dollar, costing American jobs by making Chinese exports to the United States cheaper and U.S. sales to China more expensive
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