China should not yield to US President Obama’s hardline on Yuan

US President Barack Obama vow to get “much tougher” with China on exchange rates and trade, prompted stern warnings by economists from Beijing that China should not give in to increased US pressure that stems from its own domestic problems.
Obama’s talk of putting “constant pressure” on China to strengthen the Yuan so to ensure the price of US goods was not artificially inflated has drawn heated comments from respected Beijing economists.

“His (Obama’s) words are only aimed to appeal to domestic interest groups,” said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University. Given China’s growing international clout, and the lack of jobs in the United States, Obama will certainly try to make China change its currency policy as this is an easy way to weaken China’s export industry, she said.

It is a relevant tactic given the fact that the US President has lost ground in opinion polls and is facing tough conditions leading up to the mid-term election later this year, she said.

Although the US economy recovered to 5.7% growth in Q-4 Y 2009, a record high in 6 years, jobless rate surged to more than 10% across the nation.

The US fiscal deficit is set to hit US$1.56T in 2010, or 10.6% of its GDP, breaking the record set in WWII.

Tan Yaling said Obama’s export drive could not fix the job problem, while a stronger Yuan would add costs for US consumers.

It’s an old tactic that the US uses to force its major trade partners to appreciate their currency to help itself in a time of crisis, said Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission. “China’s reforms, including exchange rate reform, should be independent of other countries,” he said.

He noted China’s currency policy should comply with the country’s macroeconomic conditions and industry restructuring. As many exporters’ sales were just starting to pick-up, a rising renminbi would hurt their fragile recovery. Many foreign experts also agreed that the appreciation of the renminbi would not remedy the global economic imbalance.

“I think it’s very important not to bash China over the RMB. What China should do, and is actually doing, is to decrease its saving rate, thus increase domestic demand, and reorient production to satisfy this higher domestic demand,” he said in an interview with the press last week.

The renminbi has gained around 21% since July 2005 when the government de-linked the Yuan from the USD. However, China’s trade surplus with its major trading partners did not fall significantly.

“The exchange rate of renminbi is not the main reason for the Chinese-US trade deficit,” Foreign Ministry Spokesman Ma Zhaoxu said Thursday. “We expect the United States to view bi-lateral trade issues rationally and to negotiate fairly. Accusation and pressure will not bring a solution,” said Ma.—Paul A. Ebeling, Jnr. www.livetradingnews.com

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