China’s premier yesterday suggested the rise of its yuan against the US dollar has ended, possibly fueling tensions with the US amid complaints the tightly controlled currency is undervalued and distorts trade.
Frictions over China’s currency are acute at a time when governments are trying to boost exports and avert a new global slowdown. Washington and other nations complain an undervalued yuan gives China’s exporters an unfair price advantage and wipes out jobs abroad.
Chinese Premier Wen Jiabao (溫家寶), speaking at a wide-ranging, three-hour news conference at the end of China’s legislative session, said the yuan has gained 30 percent in real terms since 2005 and has moved up and down since September in Hong Kong trading of nondeliverable forward contracts.
Such contracts track the movement of currencies that are not freely traded, and are settled in dollars or other hard currencies.
“That shows that the renminbi exchange rate may possibly have reached an equilibrium exchange rate,” Wen said.
Wen pledged to create a more flexible, market-based exchange rate system.
“We welcome greater elasticity of the renminbi exchange rate,” he said.
China’s normally huge trade surplus plunged to a rare US$31.5 billion deficit last month. Some commentators took it as a sign the yuan has reached a fair exchange rate. However, others said it was a one-time event, noting China often has a trade deficit early each year as factories restock after the Lunar New Year holiday.
On Tuesday, the US, the EU and Japan opened a new front in trade disputes with Beijing when they filed complaints with the WTO challenging its controls on rare earths mining and exports. US President Barack Obama accused Beijing of going against free-trade rules it promised to follow.
Wen did not mention that case at yesterday’s news conference but appealed for closer cooperation with Washington to resolve “difficulties and frictions.” He gave no indication of possible concessions on complaints about market barriers and other disputes.
Wen called for US-Chinese collaboration in clean energy, environmental protection, aviation and other technology fields.
The premier also said China plans to invest in US infrastructure — a possibility first raised in November last year by the chairman of Beijing’s sovereign wealth fund. Wen gave no timetable or possible targets for investment.
“China will make investment in infrastructure construction in the United States, and that will help contribute to the generation of local jobs,” Wen said.
Turning to the domestic economy, Wen announced no new reforms but promised more steps to achieve previously announced goals of making China’s economy cleaner and more efficient after three decades of rapid growth driven by low-cost labor.
Growth slowed to a still-robust 8.9 percent in the final quarter of last year after Beijing clamped down on credit and investment to steer the expansion to a more sustainable level from 2010’s double-digit rate. The government lowered its growth target this year to 7.5 percent from the 8 percent level in place since 2005.
“We hope China’s growth will no longer come at the cost of resource consumption and environmental pollution,” the premier said in nationally televised comments.
Wen said lending and construction curbs that have started to cool surging housing prices would remain in place despite complaints they might worsen an economic slowdown. Construction and real estate sales are key drivers of China’s growth.
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