World Bank: Chinese Yuan Revaluing Necessary, But Not Panacea
15 September 2010
Peter Simpson | Beijing
The head of the World Bank says China should revalue its currency but says that alone will not solve global trade and financial imbalances. World Bank President Robert Zoellick also praises China for lifting a half a billion people out of poverty during the past 30 years.
Zoellick says his institution agrees with many economists in the United States and Europe, and the International Monetary Fund that China needs to revamp its exchange rate to make global markets fairer.
He says at the same time, Americans and Europeans need to make structural changes to their economies, and do the opposite - save more and spend less.
He says cooperation instead of protectionism is required to avoid new shocks and damage already troubled global economy.
]China's Currency Valuation Creates Focal Point Debate
15 September 2010
U.S. Treasury Secretary Timothy Geithner is set to testify Thursday before the House Ways and Means Committee of the U.S. House of Representatives on China's alleged manipulation of its currency. The committee Wednesday heard from a number of people, including economists, on possible proposals to push Beijing to stop the manipulation. That brought responses from another group of economists.
The congressmen heard that China undervalues it's currency, the Yuan, by as much as 40 percent to give its exported goods an unfair advantage on global markets. The committee heard several suggestions of what can be done to encourage China to allow the Yuan to strengthen. One was using retaliatory duties against China under World Trade Organization rules. But, in a conference call with reporters after the congressional hearing, American Enterprise Institute economist Phillip Levy said that may not be such a good idea.
Phillip Levy's colleague, economist Desmond Lachman agreed that China's currency valuation is the center of the debate, but he also said he finds there are at least two other issues of equal or greater importance.
"One is that in addition to the currency issue, there's a whole range of non-tariff restrictions that China is resorting to give itself an unfair, competitive advantage on stuff like domestic innovation, stuff of that sort that make it difficult to compete fairly with China," said Desmond Lachman. "So, it's not just the currency issue. That last point I would like to make is that beyond the currency issue, what it's really got to be looking at the imbalance with China as a problem of saving and investment, that there's an imbalance on that score as long as China is saving at a high level you're gonna have this imbalance persisting. And, we don't see much movement by China to take those measures that would boost domestic consumption that would lay the basis for bringing the global imbalances onto a sustainable path.'
Economist Desmond Lachman says the ideal policy would be for China to cooperate in hashing out a plan to reduce trade imbalances. That could be done, he says, over a reasonable period of time with China increasing the value of its currency while the United States took measures to increase its household savings rate. At the same time, Mr. Lachman says, China would have to take the measures needed to increase domestic consumption. Without working together, he says, would just lead to a train wreck in the not too distant future.
]Obama, Wen to Meet with Currency Dispute at Forefront
23 September 2010
U.S. President Barack Obama and Chinese Premier Wen Jiabao are set to meet Thursday as the two countries spar over whether China needs to raise the value of its currency.
Mr. Wen told U.S. and Chinese business leaders on Wednesday there would be "major turbulence" in China, with corporate bankruptcies and increased unemployment, if the yuan appreciated by 20 to 40 percent "according to the requests" of the U.S. government.
But Mr. Obama said earlier in the week that the yuan was "valued lower than market conditions would say it should be." He said the U.S. would "continue to insist" on parity in trade between the two countries.
Mr. Wen said the U.S. trade deficit was caused by the "structure of Sino-U.S. investment and trade," not the level of China's currency. The U.S. has more than a $145 billion trade deficit with China through the first seven months of this year.
China tightly pegged the yuan to the U.S. dollar beginning in 2008, a move that made Chinese goods cheaper on the global markets. U.S. lawmakers and business leaders say this gave China an unfair trade advantage.
A House of Representatives panel is scheduled to vote Friday on legislation that would let U.S. Commerce Department officials impose tariffs on Chinese products entering the United States to help offset the trade imbalance.
Despite the contentious words about the currency valuation, Mr. Wen told the business leaders that he "fully believes" that all the disputes between the two countries will be resolved. He said the U.S.-China relationship "enjoys a bright future" and that the common interests "far outweigh our differences."