China's Wen Jiabao rebuffs U.S. on letting yuan appreciate against dollar

By John Pomfret
Monday, March 15, 2010

BEIJING -- Chinese Premier Wen Jiabao on Sunday lectured the United States, criticizing its call for China to let its currency rise against the dollar to boost U.S. exports, advising it to work harder to improve its financial system and directing it to change its foreign policy to improve relations with China.

Wen's comments -- during a news conference at the end of China's annual session of its nonelected legislature -- seemed to indicate that China would generally pursue a relatively tough line in its relations with the United States this year. The comments underscored China's increasing self-confidence on the international scene following its success at coping with the global financial crisis.

But Wen also continued to express caution about the course of domestic events, expressing concern about "the unsteady, uncoordinated and unstable development of the Chinese economy." China grew at 8.7 percent last year, the fastest of any major economy in the world, but it did so on the back of a massive stimulus package. Wen said China's economy faces many challenges including the possibility of a "double dip" recession if world growth doesn't pick up and, on the other hand, runaway inflation if it does.

Wen's statements on the currency issue appeared to close off the possibility that China would allow its currency, the yuan, to appreciate against the dollar anytime soon. On Thursday, President Obama, in rolling out a plan to increase American exports, called on China to adopt "a more market-oriented exchange rate [that] would make an essential contribution to that global rebalancing effort."

Wen countered that he didn't think the yuan was undervalued and that the U.S. method -- seeking to enlarge exports through tweaking currency exchange rates -- was protectionist.

"I understand that some countries want to increase their exports, but I don't understand the practice of depreciating their currency and forcing others to appreciate theirs in order to accomplish this," Wen said. "I think this is a type of trade protectionism."

China has pegged the yuan to the dollar since mid-2008 after it had allowed it to rise 21 percent during the previous three years. Theoretically, letting the yuan, or renminbi, appreciate again would make U.S. exports cheaper and thus more popular in China; it also might increase the price of Chinese goods, thereby lowering America's $225 billion trade deficit with Beijing.

U.S. officials have said they hope China will increase the value of the yuan before April 15, when the Treasury Department is scheduled to release a report on international currency practices. If that report determines that China is a "currency manipulator," meaning that it is keeping the value of the yuan artificially low, it could give added impetus in Congress to legislation that would slap tariffs on Chinese imports into the United States.

Wen also directed the United States to "take concrete steps" to improve its financial outlook and protect China's investments in U.S. Treasury bonds. China holds hundreds of billions of dollars in American debt -- so much, in fact, that the nation is often referred to as "America's banker." Wen reiterated comments he made at the National People's Congress conference last year that he was worried about China's investments.

Wen held out the hope of better ties with the United States, quoting a Chinese adage about scaling a mountain, but he continued the recent spate of criticism from Chinese officials, scolding the Obama administration for meeting the exiled Tibetan spiritual leader, the Dalai Lama, and selling a $6.4 billion package of weapons to China's nemesis, Taiwan.

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