View from Beijing: Currency manipulation and the US Congress
A Chinese bank worker counts a stack of 100-yuan notes at a bank in Hefei, east China’s Anhui province on February 27, 2011.
BEIJING, China – Gloom and doom continue to pour from Beijing over passage by the U.S. Senate of a measure that could punish China for currency manipulation.
Yet the real impact of the political spat and potential for a serious trade war are far from certain.
Chinese officials have warned that the bill, which appears unlikely to make it through the House of Representatives, would cost American jobs and spark a trade war between the two countries. American lawmakers, tired of the slow pace of China’s currency liberation, are seeking a change in the system that many believe gives China a trade advantage by keeping its yuan pegged below its true value.
“It is a serious breach of WTO rules, which cannot solve the U.S.’s own economic and employment issues, and will … seriously interfere with Sino-U.S. economic and trade relations,” China Foreign Ministry spokesman Ma Zhaoxu said this week.
And on Friday, in televised remarks, Chinese Premier Wen Jiabao warned of what he sees as rising protectionism among China’s trade partners. Though he didn’t reference the U.S. legislation specifically, Wen said he is concerned that trade protectionism will put the breaks on global economic growth
Criticism of the proposal is not limited to Chinese officials, however, indicating deeper concerns that a political fight over currency will trickle down into other areas. This week, the leading U.S. business organizations for American companies in China, the American Chambers of Commerce in Beijing and Shanghai, chimed in with their own opposition to the legislation.
“The Senate bill would damage the bilateral trade and investment relationship, weaken our standing in the World Trade Organization, and damage our national interests,” AmCham-China Chairman Ted Dean said in a statement. “We oppose it. It should not become law.”
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AmCham-China said U.S. government attention would be better focused on critical issues like protection of intellectual property. Separately, the Shanghai chamber said the U.S. government should instead focus on Chinese market limitations for American goods and services, rather than the currency problem.
“AmCham Shanghai believes currency legislation passed this week by the United States Senate is unlikely to achieve its end goal — to create American jobs — and distracts attention from important challenges facing the U.S.-China commercial relationship,” said the American Chamber of Commerce in Shanghai.
Some Chinese political scientists are taking a more relaxed approach, saying there’s no need for either side to get so worked up over the legislation. Congress has once before threatened to punish China for currency manipulation and that didn’t seem to damage the relationship.
“What the Chinese government should focus on is to examine comprehensively the current currency system, valuation formation and exchange-rate level to see whether they fit the changing domestic and international economic situations, and whether they serve nation interest,” said Yi Xianrong of the Institute of Banking and Finance at the Chinese Academy of Social Sciences
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“If (China’s) national interest is well served, who cares about what the Senate bill says?” he added.
But Lu Zhengwei, chief economist at the private Industrial Bank, said the bill is a sign of larger political implications.
“The passage of this bill should serve as a gauge of Americans' attitudes,” said Lu. “We should be alarmed that more and more Americans accept the idea that yuan is causing the problems of the U.S.”
“This bill is part of the political tricks before the 2012 election,” he added. “They have to blame someone for the problem. But the fact China is being blamed proves its status as an important player.”
As it stands, China appears firm on moving the yuan on its own timetable. The currency did appreciate noticeably this week, but there have been no indications of a major change afoot.