US urged not to harp on currency issue at talks

By Wu Jiao (China Daily)
Updated: 2008-12-03 07:23

It is unreasonable for the United States to keep pressing China on currency appreciation because both sides may lose out amid the current global financial meltdown, analysts have said.

The topic is expected to figure prominently in the two-day Strategic Economic Dialogue (SED) which begins on Thursday in Beijing.

While the yuan has risen nearly 20 percent against the greenback in the past three years, the appreciation has stalled since July, as Beijing tries to help struggling exporters hit hard by weakening foreign demand survive the crisis, experts said.

"Pushing for a rising yuan now will be a lose-lose move for both China and the US," said Zhou Shijian, a senior researcher at the Center of American Studies affiliated to Tsinghua University.

It will put additional pressure on exports, lead to price rises of Chinese goods overseas and push inflation higher in the US, Zhou told China Daily.

He was reacting to US Treasury Undersecretary David McCormick's statement on Monday that the US would push for a more flexible Chinese currency during the SED.

McCormick told reporters in Washington there has been "very significant progress" in China's currency reform over the past two years, but added the "progress needs to continue".

Zhou noted that the currency of every country experiences ups and downs, and many countries devalue their currencies in the face of economic crisis.

For instance, South Korea has allowed its currency to depreciate sharply during the financial crisis.

While the US is well aware of China's resolve on the currency issue, Zhou said its true intention is to gain more bargaining power in the negotiations.

It is time for Washington to stop pressing on the currency issue, Zhou said, adding that the US pressure is tantamount to political interference in China's economic affairs.

He suggested, instead, that the SED focus more on energy and environment cooperation.

Zhu Guangyao, an assistant finance minister, said earlier that China would keep the yuan stable against major currencies.

The biannual SED mechanism was launched in 2006 to address issues of common concern between the two economies that are becoming increasingly interrelated.

The currency issue was a key topic at the first three rounds of SED talks as some US lawmakers blame an "undervalued" yuan as a major reason for the US' worsening economy.

Unlike the previous "Paulson Effect" - when the yuan rose noticeably on the eve of US Treasury Secretary Henry Paulson's visits to China - the Chinese currency closed at a five-month low of 6.8870 to the US dollar yesterday.

On Monday, the yuan closed 6.8848 to the US dollar, down 0.73 percent from Friday's close of 6.8349, marking the biggest loss since its peg to the greenback was abolished in July 2005.

A spokesman for the People's Bank of China said on Monday that China would continue currency reform on the basis of keeping the currency stable.

The government stance has won support from experts.

"We have been moving as fast as our economy allows (in currency reform)," said Tao Wenzhao, an expert on US studies at the Chinese Academy of Social Sciences.

"It is true that we always take into consideration global trade and bilateral trade on currency reform, but the current world and domestic situation makes the currency issue more complicated," Tao said.

"China has its own program for currency reform and it will not change because of external interference."

Vice-Premier Wang Qishan and Paulson yesterday had a telephonic conversation on the fifth SED and bilateral cooperation.

The two sides exchanged views on jointly coping with the ongoing world financial crisis, pushing forward the Doha round of trade negotiations and fighting trade protectionism, Xinhua reported.