China bluntly told the United States on Friday not to make it a scapegoat for its economic woes by pressing for a revaluation of the yuan at this weekend’s meeting of the world’s leading industrial powers.
The need for China and other Asian nations to let their currencies rise to help iron out major imbalances threatening the global economy will be a major talking point when Group of Seven (G7) finance ministers gather on Saturday in Dubai.
With the U.S. presidential election less than 14 months away, Washington in particular has been urging Beijing to act to deflect pressure from U.S. manufacturers who blame job losses on what they say is an unfairly undervalued Chinese currency.
But the China Daily, in a commentary seen as reflecting the views of the government, dismissed repeated U.S. calls for a stronger yuan, also known as the renminbi, as futile.
“Making China the scapegoat can perhaps help some U.S. politicians score cheap political points, (but) it has nothing to do with the solution of their real problems,” the paper said.
China won support for its position from the No. 2 of the German central bank, who echoed concerns expressed a day earlier by the IMF about the risks posed by America’s gaping current account and budget deficits.
“We should not let the discussion about the yuan distract from the main problem of the U.S.’s twin deficits,” Bundesbank Vice-President Juergen Stark told Reuters.
Walking on eggshells
Other European officials, including European Central Bank President Wim Duisenberg, have also tiptoed into the yuan debate.
They point to the risks that freeing the yuan and opening China’s closed capital account would pose for a country with a still-immature banking system saddled with bad loans.
“The big challenge for China is not so much allowing slightly more currency flexibility as capital account liberalization — and that’s a long-term issue,” said Steve Gilmore, a foreign-exchange strategist with Morgan Stanley in Hong Kong.
China’s long-standing policy is to loosen its grip on the yuan, which trades in a tight band around 8.28 per dollar, but at a time of its own choosing; it has pointedly reminded its critics that the 1997/98 Asian financial crisis happened in part because countries opened up their markets prematurely to massive flows of footloose global capital.
America’s largest manufacturing group said on Wednesday it would file a trade complaint with the Bush administration over China’s currency policy.
But several policymakers have warned in the run-up to the Dubai talks that overt pressure on Beijing would be counter-productive, and officials said any reference by the G7 to Asian currencies was likely to be couched in general terms.
“I don’t think the communique will set a new direction for (the G7’s) exchange rate policy,” a British Treasury official said in London.
Snow ploughs into EU, Japan
The power of anything the G7 does have to say will be weakened by the absence of French Finance Minister Francis Mer, who is staying home to focus on future of ailing engineering firm Alstom, and Japan’s Masajuro Shiokawa, who is ill.
The other G7 members are the United States, Germany, Britain, Italy and Canada. They will meet on the sidelines of the annual meeting of the International Monetary Fund and World Bank.
Apart from controversy over Asia’s currencies, the group will take stock of prospects for global growth, which the Washington-based IMF expects to accelerate to 4.1 percent in 2004 from 3.2 percent this year.
A vibrant global economy generating demand for U.S. goods is crucial to President George W. Bush’s re-election prospects and his Treasury Secretary, John Snow, chided other G7 members on Friday for not pulling their weight.
“We are concerned about many parts of the rest of the world in terms of their growth rates,” Snow told a luncheon in Islamabad hosted by Pakistan’s finance minister, Shaukat Aziz.
Snow said European economies were “stagnant basically” and that Japan had gone through “10 years of very anaemic growth.” In contrast, the United States was entering what he called a period of sustained and long-term growth.
“The United States can’t be the only engine of growth,” Snow, who was due in Dubai late on Friday, said.
The 184 members of the IMF are staging their annual meeting in the Middle East for the first time.
Security is predictably heavy, with hundreds of khaki-clad police guarding a new deluxe $210 million convention center where the talks will run until Wednesday.