NEW YORK/WASHINGTON (Reuters) – Chinese Premier Wen Jiabao pushed back yesterday against US pressure to revalue the yuan, as US lawmakers threatened to penalize China for keeping its currency artificially low.
Wen, who is due to meet US President Barack Obama in New York today during the UN General Assembly, said in a speech to US business leaders the yuan exchange rate had no relation to US trade deficits and should not be politicized.
He added that a 20 percent appreciation of the yuan, also called the renminbi, as demanded by US lawmakers would cause many bankruptcies in the Chinese export sector, where firms operate on thin margins.
“The conditions for a major appreciation of the renminbi do not exist,” Wen said, adding the appreciation of China’s currency demanded by US lawmakers would not bring jobs back to the United States because US firms no longer make such labour-intensive products.
“The main reason for the US trade deficit with China is not the renminbi exchange rate, but the structure of trade and investment between the two countries,” he said, using language similar to US economists critical of the currency bill.
A House of Representatives committee scheduled a vote for tomorrow on a China currency bill, and a Democratic aide said the full House was expected to vote on the measure next week.
Critics inside and outside Congress say China deliberately undervalues its currency by as much as 25 percent to 40 percent to give Chinese companies an unfair trade advantage, hurting US exports and job prospects.
Obama said on Monday that China had not done enough to raise the value of the yuan, keeping up Washington’s tough rhetoric on Chinese policy as US lawmakers planned legislation to punish Beijing.
“It is time for Congress to pass legislation that will give the administration leverage in its bilateral and multilateral negotiations with the Chinese government,” House Speaker Nancy Pelosi said in a statement.
“If China allowed its currency to respond to market forces, it could create a million U.S. manufacturing jobs and cut our trade deficit with China by $100 billion a year, with no cost to the US Treasury.”
In the conciliatory part of his stern, 75-minute speech to a dinner sponsored by the US-China Business Council and the National Committee on U.S.-China Relations in New York, Wen said, “I fully believe that all the disputes and friction in China-US trade at the moment can be resolved.”
He added that China wanted a “strong and stable US, just as the US needs a strong, stable China” and called for more bilateral macroeconomic policy coordination to ease imbalances.
US lawmakers have pressed this issue for years with little success, but it appears to be gaining momentum — and bipartisan support — six weeks before congressional elections in which the high unemployment rate is the top issue.
The bill being considered was co-sponsored by a Democrat and Republican, and several Republican lawmakers strongly criticized China’s currency policy at congressional hearings on the matter last week.
Prospects for action in the Senate, which would also have to approve legislation, is uncertain. Key senators have said time may be too tight since lawmakers hope to leave Washington in just a few weeks to campaign ahead of the November 2 elections.
The US Treasury Department said it would “carefully examine” any proposals put forward by Congress.
Some analysts see pressure for a bill building.
“The momentum is certainly there on the Hill to push this forward before the midterm elections,” said Eswar Prasad, a professor at Cornell University. “There is a real prospect on this occasion that heated rhetoric will get translated into substantive legislative action.”
China’s central bank said in June it would loosen a peg against the dollar and let the yuan fluctuate more freely. Since then it has risen 1.8 percent against the dollar.
The slow appreciation of the yuan makes it an easy target for US politicians eager to address high unemployment in an election year.
China’s yuan has risen 1.35 percent in the past nine trading days, quickening its rate of climb against the backdrop of growing US criticism of China’s exchange rate policy.
The proposed legislation, which is certain to irritate Beijing, would essentially treat China’s “undervalued” currency as an export subsidy and allow the Commerce Department to impose countervailing duties to offset the undervaluation.
US companies applying for the duties would have to show they have been injured by China’s exchange rate practices.
Addressing the business group before Wen, US Commerce Secretary Gary Locke avoided currency talk, but said, “A worldwide rebalancing, in which America buys a little less and sells a little more to China and the rest of the world will help create a more prosperous future for everyone.”
Congressional aides said the bill did not guarantee the United States would apply countervailing duties against undervalued currencies, but eliminates a hurdle that has blocked the Commerce Department from doing that in the past.
“This bill is being advanced in the absence of effective action on a multilateral basis,” House Ways and Means Committee Chairman Sander Levin said as he announced his panel would take up the bill.
“Hopefully the concrete step of this bill can spur efforts leading to the kind of multilateral structure needed to address major currency imbalances,” he said in a statement.
Both Obama and his predecessor, President George W Bush, pushed China to move to a more market-oriented exchange rate. But the results have not come fast enough for American lawmakers who blame the huge US trade deficit with China for the loss of manufacturing jobs.
“It is very important that our companies face a level playing field around the world and that’s why it’s so important that we continue to try and encourage China to let their exchange rate reflect market forces and to end practices that discriminate against US companies,” US Treasury Secretary Timothy Geithner told lawmakers yesterday.
In a strongly worded statement on Tuesday, China’s Foreign Ministry told Washington to stop pointing its finger at Beijing over the yuan and focus instead on fixing its fragile economy.
But Chinese analyst Sun Zhe of Tsinghua University said that despite outward Chinese resistance to US pressure on the yuan, “in reality it has been making some concessions.”
“It takes very seriously the pressure from the United States over the renminbi exchange rate, he said.
