U.S. Sees China Intent On Yuan Gaining Value
Saturday, December 6, 2008
BEIJING, Dec. 5 -- Treasury Secretary Henry M. Paulson Jr. said Friday that China remains committed to market reforms and to allowing its currency, the yuan, to appreciate in value even though it fell steeply this week.
The appreciation of the yuan has been one of the Bush administration's primary goals through the U.S.-China Strategic Economic Dialogue, an annual two-day economic summit that Paulson helped create in 2006. China has responded by allowing its currency to appreciate more than 20 percent since moving to more of a market-based exchange rate in July 2005. The currency's value is important to the United States partly as a market-opening tool, because a stronger yuan makes American goods cheaper in China, thus encouraging the Chinese to buy more of them.
"There will always be people in China that look at [Chinese exporters' current troubles] and blame it directly on the currency appreciation and seek to roll that back. But I think the Chinese understand how important currency reform is to balanced growth in China," Paulson told reporters at the end of the summit's latest round.
Exchange rates on the yuan recorded their largest drop in more than three years Monday. Assistant Finance Minister Zhu Guangyao sought to ease speculation that China planned to depreciate its currency further to prop up its export market. Zhu said Friday that market forces would continue to play a "primary role" in setting the yuan's value but that China would still aim to keep the yuan at a "reasonable" and "balanced" level.
Apart from currency discussion, the outcome from the meetings was wide-ranging, if modest: The countries announced they will offer $20 billion in financing for the export of their goods to emerging markets, a move billed as an important sign of cooperation toward helping the world's economies get through the current crisis.
Also, China will ease requirements on foreign banks to trade bonds on the Chinese interbank market, treating them now as they would treat local financial companies. The United States will support China and other "important emerging market economies" toward becoming members of the Financial Stability Forum, and U.S. and Chinese officials reached an agreement to help Chinese enterprises become more energy-efficient and more environmentally sound.
In an attempt to rebuild Chinese investor confidence in Wall Street, which has been especially marred by significant losses in that country's sovereign wealth fund investments, the United States "reaffirmed that it welcomes foreign investment, including in its financial sector," according to a statement released after the talks ended. The United States also committed to working toward fast-track processing of Chinese investment applications.
"The Chinese understand that the fact that there are flaws in the regulatory structure, that have become apparent as a result of this financial crisis, does not undercut the need for continuing opening up and reform," Paulson said. Chinese officials had admonished the United States on Thursday to get its financial house in order and "protect" Chinese investments there.
Throughout his two days in Beijing, Paulson continuously highlighted the success of American "engagement" with China through the talks, and he came across as at least as focused on justifying the value of the meetings as on answering questions about each day's specific accomplishments.
The future of the talks has been the subject of considerable speculation this week, since the incoming Obama administration has not announced whether or how it plans to continue the high-level dialogue. Representatives from both governments said they valued the forum but declined to discuss its future.
"I believe that ideas that work generally don't die," Paulson told reporters.
Chinese President Hu Jintao met with Paulson on Friday afternoon and told him, "China and the United States should continue to step up their high-level dialogue mechanism for substantive cooperation and stronger bilateral relations," the official New China News Agency reported.
Paulson sought to play down American concerns about China's growing financial influence in the United States, particularly its position as the world's top holder of Treasury bills. "It's a fact that China is an investor in the U.S.," the Treasury secretary said. "But as I look around the world, I don't see any country with a stake so big that I consider it a threat."
Researcher Liu Songjie contributed to this report.