China and US spar over currencies ahead of Obama visit

Author: Reuters

The discord surfaced at a summit of the Asia Pacific Economic Cooperation
(APEC) forum in Singapore when a reference to “market-oriented exchange
rates” was cut from a communique issued at the end of two days of talks. An
APEC delegation official said Washington and Beijing could not agree on the
wording.

That underscored strains likely to feature when Obama flies to Shanghai later
on Sunday following moves by Washington to slap duties on various
Chinese-made products and a growing drumbeat of pressure on Beijing to let
its yuan currency strengthen.

Chinese officials have grown testy about the pressure over the yuan. Chinese
banking regulator Liu Mingkang told a forum in Beijing on Sunday that
ultra-low interest rates in the United States were fuelling speculation in
overseas asset markets and threatened the global economic recovery.

Obama pledged on Saturday to deepen dialogue with China rather than seek to
contain the rising power, which is set to overtake Japan next year as the
world’s second largest economy.

But issues ranging from the yuan and trade tensions to human rights could
complicate what many regard as the most important relationship of the 21st
century.

“With regards to trade, this is a difficult time for the U.S.-China
relationship,” said Derek Scissors, trade economist at the conservative
Heritage Foundation in Washington.

“The signs are actually getting worse instead of better.” Chinese President Hu
Jintao ignored the yuan issue in several speeches at APEC and focussed
instead on what he called “unreasonable” trade restrictions on developing
countries.

An earlier draft pledged APEC’s 21 members to maintain “market-oriented
exchange rates that reflect underlying economic fundamentals.” That
statement had been agreed at a meeting of APEC finance ministers on
Thursday, including China, although it made no reference to the yuan.

Washington says an undervalued yuan is contributing to imbalances between the
United States and the world’s third-biggest economy. China is pushing for
U.S. recognition as a market economy and concessions on trade cases that
would make it harder for Washington to take action against Chinese products.

China’s central bank said last week it would consider major currencies in
guiding the yuan, suggesting a departure from an unofficial peg.

But Chinese Vice Commerce Minister Chen Jian on Sunday played down talk of a
shift in policy as well as mounting expectations of a rise in the yuan’s
exchange rate.

The yuan has effectively been pegged against the dollar since mid-2008 to
cushion its economy from the downturn.

China is coming under growing international pressure to let it rise because
its manufacturers have gained market share at the expense of rivals in
countries whose currencies have risen against the falling dollar.

Obama told APEC leaders the world economy was on a path to recovery but warned
that a failure to re-balance the global economic system would lead to
further crises.

He said the world could not return to the same cycles of boom and bust that
sparked the global recession.

“We cannot follow the same policies that led to such imbalanced growth. If we
do, we will continue to drift from crisis to crisis, a failed path that has
already had devastating consequences for our citizens, our businesses, and
our governments,” Obama said.

Obama’s strategy calls for America to save more, spend less, reform its
financial system and cut its deficits and borrowing. Washington also wants
key exporters such as China to boost domestic demand.

The APEC statement endorsed stimulus measures to keep the world from sliding
back into recession and urged a successful conclusion to the Doha Round of
trade talks in 2010.

APEC is the last major gathering of global decision-makers before a U.N.
climate summit in Copenhagen in three weeks meant to ramp up efforts to
fight climate change.

Those negotiations have largely stalled, but a U.S. official said Obama had
backed a two-step plan by the Danish prime minister to aim for an
operational agreement and to leave legally binding details until later.

The APEC statement dropped all references to emissions reductions that had
been in earlier drafts.

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