Rober Pozen, “Bashing Beijing Will Not Help Our Trade Deficit”

Bashing Beijing Will Not Help Our Trade Deficit, Wall Street Journal
August 20, 2010
Rober Pozen

Pressured by the U.S. and other countries, China announced in June that it would adopt a “flexible” exchange rate for the yuan. Yet to date there has been minimal appreciation against the dollar, so the pressure is back. Responding to reports on China’s rising trade surplus in July, Sen. Charles Schumer (D., N.Y.) said last week: “These numbers show just how little motive China has to end its currency manipulation.”

Many American politicians want the yuan to appreciate relative to the dollar in order to reduce the U.S. trade deficit—by making Chinese exports more expensive, and encouraging Chinese consumers to buy more imports. However, the value of the yuan is not the main driver of the U.S. trade deficit. The wages and social safety net of Chinese workers are more important.

Labor is the most significant component of most goods exported from China to the U.S. If wages go up in China, then the prices of its exports will rise—absent a proportional increase in labor productivity. Wages are direct costs of producing Chinese exports, which cannot be easily avoided by currency hedging.

The higher prices of exports from China should reduce the incentive of U.S. consumers to buy low-end goods from China like toys and clothing. While higher prices for Chinese exports will also increase the prices of consumer goods in the U.S., a little price inflation would be a welcome antidote to the dangers of potential deflation in the U.S.

And if wages rise in China, its workers would have more money to spend. Admittedly, Chinese workers are big savers, not spenders, because of the weak social safety net there. Ironically, in the People’s Republic of China, most Chinese workers must rely mainly on their own resources to pay for health care and retirement. Nevertheless, higher wages have been closely correlated with higher private consumption in China, according to the World Bank.

Between 1993 and 1995, for example, wages rose to 54% of GDP from 50% as private consumption rose to 49% from 47% of GDP. Conversely, between 1999 and 2006, wages declined to 40% from 52% of GDP as private consumption dropped to 37% from 47% of GDP.

Over the last two months, the average minimum wage in China has increased by an average of 20% in at least 18 provinces, including Beijing and Shenzhen. These increases in minimum wages reflect the smoldering labor disputes at many Chinese plants. For instance, striking workers at the Honda plants in southern China recently accepted wage increases of 24% to end their strikes. As higher wages are reflected in higher prices of Chinese-made goods, fewer of these goods will be purchased by consumers in America and Europe.

By contrast, the value of the yuan is not closely correlated with the size of the U.S. trade deficit with China. Although the relative value of the yuan to the dollar rose by 20% between 2005 and 2008, the U.S. trade deficit with China climbed to a record $268 billion in 2008, from $202 billion in 2005. There are several reasons for this disconnect between currency values and trade deficits.

First, many exports from China to the U.S. are only assembled in China; as with Apple’s iPod, most of the components are made elsewhere. Since the Chinese input constitutes no more than 10% of such exports, even a 20% appreciation in the yuan would at most increase the prices of these exports by 2%.

Second, the appreciation of the yuan relative to the U.S. dollar may cause China to lose low-end exports to countries like Bangladesh and Vietnam—thus leading to job losses and lower imports by Chinese workers. However, such a shift in low-end exports from China to other countries will not reduce the overall volume of exports to the U.S., just the country of origin.

Third, the volume of U.S. exports to China is primarily influenced by competition with countries such as Germany and Japan on high-end capital goods like supercomputers and jet engines. The critical determinant in this high-end competition is not so much the value of the yuan, but more the value of the dollar relative to the euro and yen.

In short, American politicians should not push so hard for yuan appreciation—which has, by provoking resistance in China, been counterproductive. Instead, they should support higher wages and a stronger safety net for Chinese workers. These measures would not only help reduce the U.S. trade deficit but also would be consistent with recent efforts of China’s officials to improve the living standard of its workers.

Mr. Pozen is chairman emeritus of MFS Investment Management and a senior lecturer at Harvard Business School.

http://online.wsj.com/article/SB10001424052748704023404575429843465266202.html

Anderson Warlick, “China devalues American industry”

August 12, 2010 4:26 PM

China is stealing American jobs. Ninety thousand U.S. textile and apparel jobs have disappeared since the start of the recession. China is responsible for the lion’s share of them. We have already racked up a textile and apparel trade deficit of $23.6 million with China so far this year. Simply put, the Chinese government’s predatory practices are effectively shutting down U.S. production and throwing American workers out of their jobs while artificially bolstering Chinese exports.

While Chinese industry today is roaring ahead, the outlook is not so good for the countries like the U.S. that compete against them where unemployment remains at record levels. In order for our domestic industry to recover these jobs and get the unemployed working once again, the United States must step up enforcement of international trade agreements, particularly where China is concerned.

China subsidizes its textile industry by offering large tax rebates to its domestic manufacturers, providing massive loans through state-run banks and restricting access to raw materials. The worst of these practices is currency manipulation, which means the Chinese government keeps its currency artificially low in order to increase its exports. This has enabled China to become the largest exporter of manufacturing goods (including textile products) in the world. Chinese currency manipulation gives its exporters a 10- to 30-percent price break over goods made in other countries, including U.S.-made goods. While currency manipulation has been extraordinarily effective for Chinese industry, it has also caused hundreds of U.S. mills and thousands of other U.S. companies to shut down.

The textile industry is not the only industry that has suffered closed plants and lost jobs. The Economic Policy Institute estimates that 2.4 million jobs have been lost since 2001 because of China’s unfair trade practices. Think how much better shape our economy would be in today if we had not allowed the Chinese government to take these jobs!

Jobs would remain in the United States if the government did more to assist American businesses to export more. The goal of President Obama’s National Export Initiative (NEI) is to double exports in five years. That will not happen unless China begins to play fair. In order to accomplish the goals of the NEI, businesses need to recapture the competitive advantage to increase exports for products in demand in the global marketplace.

However, American businesses, especially the textile industry, cannot regain a competitive advantage if they are forced to compete against foreign governments that subsidize their exports. Add currency manipulation to the long list of subsidies and it is virtually impossible for the domestic industry to compete.

There is a solution. The U.S. House of Representatives returns from a six-week summer recess in September, and the House Ways and Means Committee will hold a hearing on China’s exchange rate policy on Sept. 15. One focus of that hearing will be a bill, H.R. 2378, that will hold China’s feet to the fire and force the Chinese government to rebalance the renminbi (RMB).

Congress must approve legislation rather than hold hearings. Enacting H.R. 2378, the Currency Reform for Fair Trade Act authored by Reps. Tim Ryan (D-Ohio) and Tim Murphy (R-Pa.) would give the Commerce Department the authority to accept countervailing duty and anti-dumping cases against countries that manipulate their currency to gain an unfair export advantage. This bill will finally give businesses in the United States the ability to fight back.

Diplomatic efforts to press for China to float its currency have failed. It is time for action. Call on the House of Representatives to bring H.R. 2378 to a vote. I urge you to meet with or call on your congressperson to support the textile and apparel industry in the United States. (You can find out who they are and how to contact them by visiting www.house.gov.)

Stand up to China’s job stealing and support H.R. 2378. Call your congressperson and tell them to demand an up or down vote on the bill.

Anderson Warlick is CEO of Gastonia’s Parkdale Mills.

http://www.gastongazette.com/articles/china-49830-american-jobs.html

This article is also published in the Washington Daily Times.

Shen Hong & Aaron Back, “China Balances Tone on Currency, Trade”

China Balances Tone on Currency, Trade, Wall Street Journal
By Shen Hong and Aaron Back
April 14, 2010

BEIJING—Chinese President Hu Jintao indicated to U.S. President Barack Obama that Beijing remains committed to gradually changing its currency policy and helping to increase imports from the U.S., according to a report Tuesday by the state-run Xinhua news agency.

Mr. Hu also signaled Beijing’s displeasure at demands from Washington and elsewhere that China let its currency’s value rise—telling Mr. Obama that any changes to China’s exchange-rate policies would be based on the country’s own economic needs.

But Mr. Hu’s reassurance, at a face-to-face meeting with the U.S. president in Washington on Monday, indicated an effort at conciliation and cooperation on an issue that has been a source of tension between the two nations.

In recent weeks, the Obama administration has been trying to give China time to move on its own on the currency, engaging in behind-the-scenes negotiations with Chinese leaders but refraining from tough talk.

Warming relations and a surprise visit by U.S. Treasury Secretary Timothy Geithner to Beijing last week had set off a wave of speculation that China could be preparing to change its currency policy sooner rather than later.

Mr. Hu, China’s president and the top official of its ruling Communist Party, told Mr. Obama that while China is looking to revamp the way it sets the value of the yuan, it “won’t push forward the reform under external pressure,” according to a Xinhua report.

Mr. Hu’s signal of determination that China wouldn’t bow to pressure and the comments in Beijing on Tuesday will likely reinforce the general belief among analysts that while a sudden, large jump in the value of the yuan against the U.S. dollar is unlikely, China is probably willing to allow its currency to gradually climb upwards in the coming months.

Read the rest of this entry »

“Mr. Obama and Mr. Hu,” New York Times

Mr. Obama and Mr. Hu, New York Times
Editorial
Published: April 13, 2010

We think President Obama made the right decision — for now — not to pick too public of a fight with China over its currency manipulation.

The administration postponed a report to Congress due this week on Chinese monetary policy. After Mr. Obama met with President Hu Jintao of China in Washington on Monday, the White House made a low-key statement that Mr. Obama had pressed Mr. Hu on the need to “move toward a more market-oriented exchange rate” and played up China’s pledge of cooperation on sanctions for Iran.

Beijing’s aggressive undervaluation of the renminbi is a serious problem for the American economy and the global economy. Going one on one is likely to backfire. The best hope for persuading China to change its ways is with sustained pressure from many countries. It will certainly make it harder for Beijing to hide behind claims of sovereignty and accusations of big power bullying.

That means that Mr. Obama will have to work hard to rally others to jointly press the issue. The best forum is coming in June when the leaders of the world’s biggest economies gather at the Group of 20 meeting in Toronto. They need to use that occasion to tell China, in no uncertain terms, that it cannot keep building up its own economy by undercutting the rest of the world’s exports.

They need to leave no doubt in Beijing’s mind, that its global standing will suffer if it does not listen. Few countries have benefited as much as China from the open trading system. Under sufficient pressure from its trading partners, Beijing would be likely to relent.

It’s still not clear how hard they will have to push.

At Monday’s White House meeting, Mr. Hu reportedly told Mr. Obama that China planned to move away from its fixed currency peg to the dollar. He didn’t say when. And according to remarks released by the Foreign Ministry, he also stated that the objective of changing China’s currency strategy “won’t be advanced by any foreign pressure.” Mr. Hu’s next stop is Brazil. Finance Minister Guido Mantega said last week that China’s exchange rate peg is hurting Brazil’s manufacturing. We hope that Brazilian officials are just as direct in their meetings with the Chinese president.

This is a global problem. The renminbi’s fixed and artificially cheap exchange rate is undercutting exporters throughout the developing world. It also is seriously complicating economic policy-making among China’s neighbors. So long as the Chinese currency remains so cheap, they cannot afford to combat burgeoning inflation by allowing their own currencies to rise because it could further undercut their exports.

China would also benefit from shifting from exports to internal consumption as a source for growth. It would improve the living standards of its citizens. It would ease the job of its central bank in trying to keep inflation at bay. And it would establish China as a more responsible player on the global economic stage.

The Chinese bureaucracy is clearly split. Central bank officials have been arguing for some time that a stronger currency would help them combat rising inflation. The Commerce Ministry is adamantly opposed. Ministry officials latched on to the fact that China recorded its first monthly trade deficit in six years in March — a one-time blip because of fast imports of raw materials for China’s export industry — to argue that their cheap currency is not the cause of global trade and financial imbalances.

It is. China should not be allowed to forget it. Barring a change of exchange rate policy, China’s trade surpluses are going to bloat again in the months to come.

This is not a problem just between the United States and China. It is a problem between China and most of the world. The challenge for President Obama now is to get the rest of the world’s leaders to deliver that message as clearly and urgently as they can.

“Obama calms China renminbi dispute,” Financial Times

Obama calms China renminbi dispute, Financial Times

By Daniel Dombey and Alan Beattie in Washington and Geoff Dyer in Beijing

Published: April 13 2010 19:07 | Last updated: April 14 2010 04:59

Barack Obama sought to defuse the US-China confrontation over the renminbi on Tuesday by ack­now­ledging Chinese sensitivities about the US ­campaign for currency appreciation.

Speaking at the end of the nuclear security summit he hosted in Washington, the US president depicted the relationship with China as increasingly productive – a sign of his administration’s growing confidence that Beijing is moving the way the US wants on the renminbi and sanctions on Iran. The two issues are among Mr Obama’s international priorities.

“China rightly sees the issue of currency as a sovereign issue,” he said when asked about his meeting on Monday with Hu Jintao, China’s president. “They are resistant to international pressure when it comes to them making decisions about their currency policy and monetary policy.”

But he added that a “more market-oriented currency approach” would be in China’s own interest and would help rebalance its economy away from exports towards domestic consumption and production, so as to avoid “bubbles from building up within the economy”.

Mr Hu has sought a similar delicate path of his own, asserting Beijing’s right to set exchange rate policy while avoiding open conflict with the US over one of the most sensitive issues in international diplomacy.

“China will firmly stick to a path of reforming the yuan’s exchange rate formation mechanism,” he told Mr Obama on Monday, according to China’s official Xinhua news agency. But the agency reported that he also insisted that a move by Beijing “won’t be advanced by any foreign pressure” and indicated he did not share the US view that revaluation would help rebalance the world economy.

“Renminbi appreciation would neither balance Sino-US trade nor solve the unemployment problem in the US,” Xinhua quoted him as saying.

China’s vice foreign minister sent the same message on Tuesday when he told reporters in Washington that China did not believe the world’s economic problems were tied to its exchange rates.

“It is not justified for outsiders to exert pressure (on the currency) and we will not take action under pressure,” Cui Tiankai said, according to Reuters.

Financial markets reacted by lowering somewhat expectations for liberalisation of the renminbi. Economists said a gradual rise beginning around the middle of the year was still the most likely outcome.

“It is only a matter of time before China moves but they like to do things in response to domestic economic conditions,” said Kevin Grice, international economist at consultancy Capital Economics.

US officials also highlight increased co-operation with Beijing on the Iran file, despite disputes this year over Taiwan, Tibet and Google.

“The amount of turbulence … was actually relatively modest when you look at the overall trajectory of US-China relations,” said Mr Obama, noting that China had “sent official representatives to negotiations in New York, to begin the process of drafting a sanctions resolution” on Iran at the United Nations.

In Beijing, the message was more nuanced. “Sanctions and pressure cannot fundamentally resolve the issues, and dialogue and negotiation are the best ways,” said Jiang Yu, a spokeswoman for the Chinese foreign ministry. But she also signalled that UN Security Council measures were now likely. “We believe the Security Council’s relevant actions should be conducive to easing the situation and conducive to promoting a fitting solution to the Iranian nuclear issue through dialogue and negotiations,” she said.

http://www.ft.com/cms/s/0/40ba438a-4723-11df-b253-00144feab49a.html

“China’s Hu rebuffs Obama on yuan,” Associated Press

China’s Hu rebuffs Obama on yuan
AP
Tue Apr 13, 10:17 am ET

BEIJING – Chinese President Hu Jintao rebuffed U.S. calls to re-value China’s currency, telling President Barack Obama that any tinkering with the yuan will be done by Beijing in accord with domestic interests.

Hu defended China’s policy of pegging the yuan to the dollar at a Monday meeting with Obama in Washington and said changes to the exchange rate would not come from U.S. pressure.

“Detailed measures for reform should be considered in the context of the world’s economic situation, its development and changes as well as China’s economic conditions. It won’t be advanced by any foreign pressure,” Hu said in remarks released by China’s Foreign Ministry on Tuesday. He said reform would come based on China’s “own economic and social development needs.”

China’s currency has emerged as prominent friction in a relationship already troubled by disputes over trade, U.S. arms sales to Taiwan and Obama’s meeting with Tibet’s exiled leader, the Dalai Lama.

With high unemployment persisting in the U.S., Congress has been pressuring the Obama administration to punish China for the yuan-dollar peg — a tactic which economists say keeps the currency undervalued and gives Chinese exports an unfair advantage.

Hu told Obama that a rise in the value of the yuan, also known as the renminbi, would not solve U.S. economic ills. “Renminbi appreciation would neither balance Sino-U.S.. trade nor solve the unemployment problem in the United States,” Hu said, according to the remarks.

He reiterated his government’s standing line that China did not intentionally seek a trade surplus with the with U.S. and would buy more goods if Washington relaxed controls on exports of high technology goods.

White House national security aide Jeffrey Bader said Obama reiterated his view that there needs to be “a more market-oriented exchange rate.”

Despite Hu’s statements, many economists and financial analysts believe China will re-value the yuan in the second or third quarter this year. Options include a one-off revaluation or resuming a slow appreciation of the currency.

Beijing used a combination of the two — a one-off revaluation followed by a crawling appreciation — in 2005 when it ended a decade long yuan-dollar peg. But China reverted to the peg in mid-2008 worried about the impact on its exports as the economic crisis took off in the U.S.

The yuan was only one of several issues Obama and Hu discussed — Iran’s nuclear program chief among them. Bader described the meeting as “positive and constructive” and the presidents are “familiar and comfortable with each other.”

In recent weeks, Washington and Beijing have sought to relax tensions that crept into relations late last year after the arms sales and contentious negotiations on climate change. Particular attention has been paid to trying to make discussions of the yuan less heated. U.S. Treasury Secretary Timothy Geithner, on his way home from India, stopped in Beijing last week for a 75-minute discussion with Vice Premier Wang Qishan.

http://news.yahoo.com/s/ap/20100413/ap_on_bi_ge/as_china_us_currency

Mark Drajem, “Schumer, Graham Push Bill to Pressure China on Yuan”

March 16 (Bloomberg) — Senators Charles Schumer, Lindsey Graham and Sherrod Brown revived U.S. legislation that would increase pressure on China to raise the value of its currency.

The draft bill, similar to a measure considered in 2007, would require the Treasury Department to determine if a nation has a currency misaligned with the dollar. The bipartisan proposal also would make it easier for companies to seek import duties to compensate for an undervalued currency.

The draft bill, similar to a measure considered in 2007, would require the Treasury Department to determine if a nation has a currency misaligned with the dollar. The bipartisan proposal also would make it easier for companies to seek import duties to compensate for an undervalued currency.

“President Obama has outlined a plan to double exports but you simply can’t do that if you don’t address the currency issue,” Brown, an Ohio Democrat, said at a news conference in Washington today. “China’s current policy is out-and-out protectionism.”

Lawmakers are prodding President Barack Obama to take a tougher line on China’s currency policies, which have held the yuan’s valuation at rates more favorable globally to Chinese exporters. Schumer, a New York Democrat, said the U.S. is losing export opportunities and jobs, and China’s policies toward the yuan, or renminbi, can only be changed by legal force.

The Obama administration wants the yuan to appreciate and will review the legislation, a Treasury Department official said. China has seen its exports and economy grow while continuing to accumulate reserves, indicating the yuan should resume its appreciation, the official said in a statement.

China Holds Firm

Chinese Premier Wen Jiabao on March 14 rebuffed calls for an end to the currency link, saying he doesn’t “think the renminbi is undervalued.” Some U.S. arguments on the yuan’s exchange rate are “groundless,” Ministry of Commerce spokesman Yao Jian said earlier today at a briefing in Beijing.

“The trade imbalance is not something that the exchange rate can resolve and politicizing exchange-rate issues is counterproductive to global efforts in tackling the financial crisis,” Yao said.

Acting U.S. House Ways and Means Committee Chairman Sander Levin, a Michigan Democrat, told reporters at a separate briefing in Washington that China “rigs” its currency and has views that are the “opposite of reality.”

Levin plans a March 24 hearing and said he seeks a “more multilateral approach” on the Chinese currency.

Schumer said the Senate proposal will be attached “very soon” as an amendment to “must-pass legislation.”

Currency Peg

White House press secretary Robert Gibbs repeated today that Obama in meetings with Chinese President Hu Jintao had pressed for the government in Beijing to take “a market- oriented approach to their currency.” Gibbs didn’t directly comment on the legislation.

China pegged the yuan at about 8.3 per dollar from 1995 until July 2005, when the government shifted policy and allowed some fluctuation by managing its exchange rate against an undisclosed basket of currencies. After a 21 percent gain in the currency that hurt its exporters, China in July 2008 restrained the yuan’s value at about 6.83, mainly by buying U.S. dollars.

China had $889 billion in net holdings of U.S. Treasury debt as of January, more than any other nation, according to data released yesterday. The depressed yuan value lowers prices for Chinese exports and raises prices for foreign imports.

Senator Debbie Stabenow, a Michigan Democrat who attended today’s news conference, called China’s policies “cheating,” and Graham, a South Carolina Republican, said China is too big a player in the world economy to manipulate its currency.

Yuan forwards weakened to their lowest level in almost two weeks today on speculation the government will limit gains this year to further aid exports.

Déjà vu Again

The restrained value of the yuan has contributed to souring economic relations with China, the second-biggest U.S. trading partner after Canada. Schumer has pushed legislation aimed at China’s currency since 2003, first threatening across-the-board tariffs of 27.5 percent.

“It a political game,” Charles Freeman, a fellow at the Center for Strategic and International Studies in Washington, said in a Bloomberg Television interview. “It’s déjà vu all over again.”

Yesterday, U.S. lawmakers urged Treasury Secretary Timothy F. Geithner to find that China manipulates its currency. Representatives Timothy Ryan of Ohio and Mike Michaud of Maine, both Democrats, sent a letter signed by 130 lawmakers to Geithner demanding the Obama administration take actions including higher tariffs on Chinese-made imports.

The current law requires a finding of currency manipulation, which the Treasury declined to make in April even as it said the yuan was undervalued. The measure proposed today doesn’t single out China by name.

Currency Misalignment

If the Treasury made a misalignment determination for a country such as China, the U.S. would be forced to take actions at the International Monetary Fund and, after 60 days, would have to bar federal procurement from that country. After 360 days of inaction, the U.S. Trade Representative’s office would have to bring a complaint at the World Trade Organization, according to the draft legislation today.

The legislation would also let U.S. companies seek countervailing duties on imports from countries found to be manipulating their currency.

The yuan’s 12-month forwards dropped 0.1 percent to 6.6575 per dollar as of 5:30 p.m. in Hong Kong, from 6.6518 yesterday, according to data compiled by Bloomberg. The contracts earlier touched 6.6630, the weakest level since Feb. 26, and reflect bets the currency will strengthen 2.5 percent from the spot rate of 6.8259.

Paul Krugman, a Nobel-prize winning economist at Princeton University in New Jersey, said last week that global economic growth would be about 1.5 percentage points higher if China stopped restraining its currency.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net.
Last Updated: March 16, 2010 16:34 EDT

http://www.bloomberg.com/apps/news?pid=20601068&sid=an6AYGUAYJFM

Daniel Dombey, “Congress letter urges action on renminbi”

Congress letter urges action on renminbi

By Daniel Dombey in Washington

Published: March 15 2010 15:52 | Last updated: March 16 2010 18:01

More than 100 members of the US Congress on Monday called on the Obama administration to label China a currency manipulator, in a move that highlighted the pressure on Washington to take a more confrontational stance towards Beijing.

In a letter to Timothy Geithner, Treasury secretary, and Gary Locke, commerce secretary, the 130 Congressmen demanded the administration designate China a manipulator when it issues its regular report on currency manipulation next month. They called for countervailing duties to be imposed on Chinese imports.

“I have not really seen this level of enthusiasm among members of Congress before,” said Tim Ryan, one of the Congressmen organising the bipartisan letter. “There is a heck of a coalition behind this and the time is right.”

The letter adds to pressure on the Obama administration, which is trying carefully to manage its relationship with China, one of the largest buyers of US government debt, amid fears a rift could unnerve investors and undermine recovery.

The Obama administration has been reluctant to designate China a currency manipulator at a time when figures including Mr Geithner have sought to work with Beijing. The US has looked for support from China on a range of issues from climate change to United Nations sanctions on Iran. But, with US unemployment at nearly 10 per cent, the administration has also identified the alleged undervaluation of the renminbi as a top priority. Calls from the Democratic party’s base for a tougher line have intensified.

“It’s politically important for Democrats obviously but there are also many Republicans and small business owners that would benefit from this,” said Mr Ryan, who hailed Mr Obama for having taken “a more aggressive approach on enforcing our trade agreements than any president has for 30 years”.

The letter adds that, after a formal designation, the US should begin talks with China on its foreign exchange regime and signal its willingness to enter a formal complaint at the World Trade Organisation.

“This is very risky. On both the Chinese and the US sides the leadership feels that you have to keep the relationship on an even keel, but with domestic feelings running high there is a risk that it gets out of control,” said Eswar Prasad, an expert at Cornell University and the Brookings Institution.

“There is a consensus building in the US that China’s position on the currency is untenable and that China is throwing its weight around in a way that is unfriendly,” he added. ”The perception in China is that the dynamic in the bilateral relationship has shifted completely to Beijing’s advantage.”

In a letter last month 15 US Senators criticised Mr Locke for having “failed” to adequately investigate charges that China deliberately undervalued its currency for trade advantages while a number of members of Congress have introduced legislation to label Beijing a manipulator.

The US Treasury declined to comment on the latest call. The last time it designated a country as having manipulated its currency was in 1994, when it identified China as having done so.

Since then trade between the two countries has risen enormously, with Chinese exports to the US reaching $296bn in 2009 and imports hitting $70bn. Mr Prasad adds that China holds about 10 per cent of the total US outstanding government debt of $7,800bn.

http://www.ft.com/cms/s/0/af1268ca-304a-11df-8734-00144feabdc0.html

Martin Wolf, “Grim truths Obama should have told Hu”

Geoff Dyer and Edward Luce, “Obama calls for stronger renminbi”

President Barack Obama yesterday urged China to strengthen its currency as tensions over exchange rates and trade broke through a carefully orchestrated show of co-operation between Washington and Beijing.

Mr Obama made his comments after a three-hour meeting in Beijing with President Hu Jintao, during which both leaders pledged to work together on pressing international issues.

However, the US president also joined in the growing

chorus of international voices calling on China to allow the renminbi to appreciate.

“I was pleased to note the Chinese commitment made in past statements to move toward a more market-oriented exchange rate over time,” he said at a joint appearance with Mr Hu. Such a move would “make an essential contribution to the global rebalancing effort”.

The reference to “past” statements could imply that China did not make any new commitments yesterday. Mr Hu did not mention the currency issue in his statement, although he did call on both governments to refrain from protectionism, a criticism of recent US measures on Chinese steel pipes and tyres.

Coming at a moment when Chinese prestige is growing and the US is facing enormous difficulties, Mr Obama’s trip has symbolised the advent of a more multi-polar world where US leadership has to co-exist with several rising powers, most notably China.

The two leaders both made prepared statements, adding to the impression that Mr Obama’s visit has been one of the most tightly scripted in recent years.

In their comments and a joint statement, the pair spelt out a programme for ever-growing co-operation, including stronger military ties, research initiatives on climate change and clean energy and “a dialogue on human space flight”.

On Iran , where the US has been pushing China to take a harder line against Tehran, Mr Obama used stronger language: “Iran has an opportunity to present and demonstrate its peaceful [nuclear] intentions but if it fails to take this opportunity, there will be consequences.” Mr Hu said it was important to resolve the issue through negotiations.

China’s currency has been effectively re-pegged to the US dollar since mid-2008. In recent weeks a number of international officials and governments have complained about the advantage this gives Chinese exporters.

Yu Yongding, a leading Chinese economist and former central bank adviser, said Europe and China “should play together and put pressure on the US to change its monetary policy”. China and much of the world was being held “hostage” by US policy, he said.

http://www.ft.com/cms/s/0/1dc505da-d3e3-11de-8caf-00144feabdc0.html