AFP/GETTY IMAGES - A Chinese worker unloading steel bars at a factory in Huaibei, east China's Anhui province.
One of the most politically contentious is China’s management of its currency, which U.S. leaders, as well as independent economists and the International Monetary Fund, have long criticized as artificially low.
In response to heavy lobbying, China has since 2011 allowed its currency to become as much as 8 percent more valuable relative to the dollar, after inflation, building on prior progress. That has modestly leveled the playing field.
Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, talks about the outlook for China's economy and his expectations for People's Bank of China monetary policy. Kowalczyk also discusses Asian currencies. He speaks with Rishaad Salamat, Zeb Eckert, John Dawson and Robyn Meredith on Bloomberg Television's "Asia Edge." (Source: Bloomberg)
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The IMF now says that the Chinese currency remains “moderately undervalued.” Nonetheless, China has allowed its currency to depreciate lately as growth has slowed. This year, the renminbi depreciated by 2 percent, after inflation.
“China will be less forthcoming in terms of currency appreciation,” said Cheng Li, a China scholar at Brookings.
Earlier this month, the state-backed China Securities Journal noted that “depreciation . . . will be beneficial by enhancing exports” and said the currency should fall by an “appropriate” amount, according to the Financial Times.
China’s trade advantage over the United States has continued to widen in recent months. On Thursday, the U.S. reported that its trade deficit — how much more the country exports than imports — narrowed, a positive for economic growth. But it widened with China.
Others note China has not overreacted to its slowdown. So far, its currency’s decline relative to the dollar has been modest this year. Chinese leaders also don’t appear to be backing off other commitments to open up markets.
Another currency indicator, which is used by many economists to take into account a broader swath of global trade, shows the Chinese currency appreciating slightly this year, but still at a significantly slower pace than in recent years.
It’s also possible the United States might take steps that could aggravate relations with China.
When the Federal Reserve embarked on another aggressive campaign to lower interest rates in late 2010, China howled, saying it would devalue the dollar and help U.S. exports. And indeed, the dollar did come down some, and exports boomed.
But the dollar has since rebounded, likely as investors have sought security in U.S. Treasury bonds.
China might signal similar concern this September, if the Fed launches a round of so-called quantitative easing to jolt growth.
Republican candidate Mitt Romney has lashed out at President Obama for refusing to declare China a “currency manipulator,” a Treasury Department designation that could lead to tariffs. Romney has vowed to do so, a move favored by many labor unions.
Obama officials have questioned the usefulness of the label and suggested it would cause a trade war. They point out that China has made a lot of progress in allowing its currency to appreciate over the past several years.
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