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China leaves door open for currency reform

Chinese Premier Wen Jiabao answers questions during a press conference after the closing meeting of the Third Session of the 11th National People's Congress (NPC) at the Great Hall of the People in Beijing, capital of China, March 14, 2010. (Xinhua/Ju Pen

Chinese Premier Wen Jiabao answers questions during a press conference after the closing meeting of the Third Session of the 11th National People's Congress (NPC) at the Great Hall of the People in Beijing, capital of China, March 14, 2010. (Xinhua/Ju Peng)
Chinese's Premier Wen Jiabao Sunday said the Obama administration should not lecture it how to manage its economy, widely thought a bright spot after a much depressed global one, and suggested Washington not engage in protectionist measures to shut out Chinese goods.

Though Mr. Wen bushed aside external calls for Beijing to resume appreciating its currency, saying the yuan is not "undervalued", he also left the door open for a continuous reform in China's currency exchange rate formation system, given the outside pressure isn't there.

"We are opposed to the practice of mutual finger pointing among countries or taking strong measures to force other countries to appreciate their currencies," Wen said to packed reporters at the Great Hall of the People. "To do this is not beneficial to reform of the renminbi (the yuan) exchange-rate regime."

Analysts believe that China's central bank might move to let the yuan gain value against the U.S. dollar and other major currencies some time in 2010, once it feel assured that the country's economy has stepped out the global Great Recession, and a well-measured appreciation won't cause a damaging effect on its exports.

Also, a rise in the currency's value will contribute to a more balanced trade, and help blunt inflation by reducing trade surplus and curtailing supply of the yuan bills at the domestic monetary market. Mr. Wen said that inflation expectation management is one of the chief priorities of his government this year.

During the press conference, Wen twice asked the Obama administration to allow exports of American high-tech products and technologies to China, which he said would help balance the two-way trade. The United States has been running at a deficit in trade with China for many years, but its intentional ban of high-tech exports, feared to be made use of by China's military, has partly caused the trade gap.

Premier Wen Jiabao also recommended that Washington work harder to fix its broken financial system, whose sub-prime mortgage crisis in late 2008 caused the global financial meltdown.

On domestic front, Mr. Wen expressed much caution about the course of economic performance, expressing concern about "the unsteady, uncoordinated and unstable development of the Chinese economy."

China's GDP expanded by 8.7 percent last year, the fastest of any major economy in the world,but it did so on the back of a massive stimulus package and a flooding of 9.59 trillion (US$1.4 trillion) bank loans into the money market. Mr. Wen cautioned that China's economy faces many challenges including the possibility of a "double dip" recession if world growth, especially of the United States and Europe, doesn't pick up, or on the other side, runaway inflation if it does.

China's inflation hit 2.7 percent in February, and is widely believed to surpass 3 percent in the following months. The government set the annual inflation rate at 3 percent for 2010.

China is against protectionism

"I understand that some countries want to increase their exports but I don't understand the practice of depreciating their currency and forcing others to appreciate theirs in order to accomplish this," Wen said in a clear nod to the United States. "I think this is a type of trade protectionism."

Last year, he said, the EU saw exports drop by 20.3 percent overall, but exports to China declined by only 15.3 percent. Germany, meanwhile, saw exports to China peak at 76 billion euros ($104.6 billion).

The US' exports slumped by 17 percent last year, but exports to China dropped by only 0.22 percent, Wen said.

Wen also expressed Beijing's concerns about the safety of its holdings of US treasury bonds, as he did at last year's news conference。

"Any fluctuation in the value of the US currency is a big concern for us," Wen said. "We cannot afford any mistake, how slight it is, when running our financial assets."
China sold out US$34.2 billion worth of US Treasuries in December, as Beijing is very much concerned about the value of the greenback.

According to the US Treasury Department, China held $894.8 billion in treasury bonds at the end of last year. This figure, revised up from the previous $755.4 billion, means China remains the largest overseas holder.

Wen held out the hope of better ties with the United States, quoting a Chinese idiom about scaling a mountain, but he scolded the Obama administration for meeting the Dalai Lama, a widely believed separatist figure in China, and selling US$6.4 billion package of weapons to Taiwan.
"These moves have violated China's territorial integrity," Wen said. "The responsibility does not lie with the Chinese side but with the United States."

People's Daily Online

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