Published: February 4, 2010
BEIJING — A senior Chinese official said on Thursday that
China would not bow to pressure from the United States to revalue its currency,
which President Obama says is kept at an artificially low level to give China an unfair
advantage in selling its exports.
Skip to next paragraph The official, Ma Zhaoxu, a Foreign Ministry spokesman, said
at a regular news conference here that “wrongful accusations and pressure will not
help solve this issue.”
Mr. Ma was reacting to remarks on trade that Mr. Obama made on Wednesday when he met
with Democratic senators in Washington. Mr. Obama stopped short of saying China
manipulates its currency, but his words on China’s economic policies were harsh —
the United States, he said, had “to make sure our goods are not artificially
inflated in price and their goods are not artificially deflated in price; that puts
us at a huge competitive disadvantage.”
Economists agree with that assessment. They say that the Chinese currency, the
renminbi, is undervalued by 25 to 40 percent compared to the dollar and other
currencies. The gap is wider than at any time since July 2005, when the Chinese
government, under pressure from the Bush administration, decided to the do away with
the renminbi’s peg to the dollar and allow the currency to float in a narrow band
against the dollar and other currencies.
The renminbi appreciated 21 percent, but since July 2008 it has remained at the same
value — today, one dollar equals about 6.83 renminbi, also called the yuan.
“Judging from the international balance of payments and the currency market’s supply
and demand, the value of the renminbi is getting to a reasonable and balanced
level,” Mr. Ma said on Thursday.
The sharp exchange over China’s currency is only the latest symptom of rising
tensions in American relations with China. Internet censorship, hacking attacks
directed at American companies, arms sales to Taiwan and the pending visit of the
Dalai Lama to Washington have all cropped up in the last month as points of
conflict. China is exhibiting a brash sense of confidence as its economy continues to
boom while much of the world remains mired in a recession.
On economics, Chinese officials now regularly lecture their American counterparts on
the need to maintain the value of the American dollar. China, which has more than
$2.4 trillion in foreign exchange reserves, is the largest holder of American debt.
On Wednesday, Xinhua, the official state news agency, .the
official state news agency said Chinese economists were concerned that the American
government, suffering from a record budget deficit, could print more dollars and
issue more bonds, eroding the value of the dollar.
The finger-wagging from the American side is almost certain to intensify too. With
midterm elections this fall, Mr. Obama is under pressure to alleviate the high
unemployment rate in the United States. Mr. Obama said last week in his
State of the Union address that he hoped to double American exports within five
years.
In China, the export industry is a large employer in the coastal regions and draws
hordes of migrant workers from interior provinces. Exports have slowed considerably
since the global financial crisis began, and Chinese leaders and economists have
been saying that domestic consumption should become a larger part of the economy.
Last year, the Chinese economy grew by 8.7 percent, surpassing the 8 percent
benchmark set by the government and indicating that China was managing to push
through the global recession with little damage. A large driver of the growth was
domestic spending — the Chinese government announced in November 2008 a stimulus
package worth $585 billion.
But the spending, along with in-flows of foreign currency through private
investments and speculation, what some economists call “hot money,” is fueling
inflation. The consumer price index in the fourth quarter of 2009 rose 1.9 percent. Fears of an
overheated economy could lead the Chinese government to revalue the renminbi later
this year to help contain inflation.
In late January, Jim O’Neill, the chief economist at Goldman Sachs, told Bloomberg
News that he expected the Chinese government to make a one-off revaluation of the
renminbi, letting it appreciate by at least five percent before the end of 2010. He
said the revaluation would happen suddenly, without any warning from Chinese
leaders.
Reopening the battle with Beijing over its currency may pay political dividends for
Mr. Obama at a time of double-digit unemployment and growing fears that China is
stealing American jobs. But experts say the president will have even less leverage
over Beijing than President George W. Bush did. Mr. Bush prodded China for years to adjust its exchange rate
with little success.
China, they say, is determined to reignite its export machine after a global
recession that sapped demand for Chinese goods. A cheap currency is vital to that
goal. And as indicated by Mr. Ma’s statement on Thursday, China’s leaders have grown
impatient with lectures on economic policy from their chief debtor, the United
States.
“It will be like water off a duck’s back,” said Nicholas R. Lardy, a China expert at
the Peterson Institute for International Economics. “They’re puzzled by the
criticism. They think they should be praised for keeping their currency stable at a
time of global turmoil.”
Criticizing China’s policy, however, is likely to worsen a relationship already
frayed by irritants on both sides.
In two weeks, Mr. Obama is expected to meet with the Dalai Lama, the Tibetan
spiritual leader, over the objections of the Chinese, who condemn him as a
subversive. The administration forged ahead with sales of weapons to Taiwan, drawing
an angry blast from Beijing, which regards Taiwan as a breakaway province. Secretary
of State Hillary Rodham Clinton criticized China for censoring the Internet, in the wake of
Google’s allegations about hacking.
For its part, the United States is frustrated that the Chinese will not back tougher
sanctions against Iran over its nuclear program. And China has resisted American
initiatives on climate change policy, turning the recent
climate meeting in Copenhagen into a diplomatic drama.
The administration has struggled to prevent the ill will from any single issue from
contaminating the broader relationship. “We can’t pick the timing of when an issue
becomes important,” said a senior official, who spoke on the condition of anonymity
because of the delicacy of the matter.
Exchange rates are an arcane subject, harder to explain than a meeting with the
Dalai Lama. But they influence easy-to-understand issues like the competitiveness of
American exports and job security.
“The currency issue has the potential to become a very hot political issue,” said
Kenneth G. Lieberthal, who worked on China policy in the Clinton White House. “We’re
in significant danger of hitting a very rough patch in trade relations, in the
latter part of this year.”
Edward Wong reported from Beijing, and Mark Landler from Washington.