I just came across these two articles from a Google alert. It is timely given the recent articles about the Yuan vs US dollar. The free site requires registration but I have cut and pasted the articles.
Here is the link:
China feels the heat by Karen Malley
Could the United States and China be edging towards a trade war? That fear could unsettle financial markets in coming weeks, particularly in light of the heated rhetoric over the past few days.
The latest exchange started last week, when US president Barack Obama encouraged China to adopt a “more market-oriented exchange rate”.
Yesterday, Chinese Premier Wen Jiabao retaliated sharply, arguing the yuan was not undervalued, and warning countries to stop pressuring China on its exchange rate policy.
Speaking at his annual press conference at the close of the National People’s Congress, Mr Wen said China opposed “all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies".
Mr Wen pointed out that US and European exports to China were more robust than their exports to the rest of the world. He added: “What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is trade protectionism." (Grim words from China, March 15)
Mr Wen argued that European and US interests would be hurt by restricting Chinese exports. He said around half of China’s exports involved assembling imported components at Chinese factories. In addition, 60 per cent of exports came from companies that were either foreign-owned, or were in a joint venture with a foreign partner.
“If you restrict trade with China, you are hurting your own countries’ firms,” he warned.
His comments come at a difficult time in the United States and Europe, which both face stubbornly high levels of unemployment and sluggish growth. Both are looking to boost economic activity by increasing exports. But this strategy is threatened by what they see as China’s unfair trade practices, including its artificially low exchange rate (Full coverage: China's economic policy).
Last month, US President Barack Obama, who wants the US to double its exports over the next five years, said the issue of a weak Chinese currency had to be addressed “to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price”.
More recently, a bipartisan group of senators urged the Obama administration to take urgent action against Chinese currency manipulation, which they alleged was hurting US manufacturers and workers. The US Treasury has until mid-April to label China as a 'currency manipulator'. Such a move would likely result in increased import duties.
Both the United States and Europe have already imposed special tariff levies on some Chinese imports. In retaliation, China has lodged formal complaints with the World Trade Organisation against the 35 per cent tariff duty the Obama administration imposed on Chinese tyre imports, and the 16.5 per cent European Union levy on Chinese shoe imports.
Many analysts believe the Chinese will let their currency appreciate slightly in coming months to defuse protectionist sentiment at November’s mid-term elections.
A little over a week ago, Zhou Xiaochuan, governor of the People’s Bank of China, appeared to encourage this view. He told a press conference that China’s current exchange rate policy was “part of our package of policies for dealing with the global financial crisis”. These policies, “sooner or later will be withdrawn”.
But Mr Wen’s comments at yesterday’s press conference suggest he believes the crisis is not yet past, and that, in the meantime, China intends to rebuff pressures to let its currency appreciate.
The Chinese premier adopted a cautious economic outlook, saying there was still a chance the world could experience a “double-dip” recession because of remaining problems in the financial sectors and high levels of unemployment.Mr Wen also alluded to China’s position as a major US creditor, and to its massive stockpile of $US755 billion in US Treasuries it holds. China, he said, was “very concerned about the lack of stability in the US dollar”, adding that he hoped Washington would take steps to reassure international investors.
China sees possibility of double dip recession; domestic worries weigh By Benjamin Kang Lim and Langi Chiang of Reuters
BEIJING - Chinese Premier Wen Jiabao on Sunday spurned foreign calls for the yuan to rise and showed no let up in scolding the United States over recent bilateral tensions.
Wen said calls from the United States and other big economies for China to lift the value of its yuan currency were unhelpful, even protectionist, and vowed that Beijing will steer its own way on currency reform through a risk-filled economic landscape.
"We oppose mutual accusations between countries, and even using coercion to force a country to raise its exchange rate, because that's of no help to reforming the yuan exchange rate," Wen told a two-hour news conference at the end of China's annual parliament meeting.
"We don't believe that the yuan is undervalued."
Blending his trademark folksy tone with a prickliness born of leading the world's fastest-growing major economy, Wen used the keynote event to both cast China as a benign political and economic power and as the victim of unfair international demands.
The United States, the European Union and others have long been critical of China's yuan regime. Many US lawmakers complain China's currency is undervalued by as much as 40 per cent, undercutting the competitiveness of US products.
The risks of deepening economic tensions between Washington and Beijing now hinge on a decision by the Obama administration about whether to call China a "currency manipulator" in a semi-annual Treasury Department report due out on April 15.
Adding to the pressure, US Senator Charles Schumer said on Friday that he plans to move forward legislation aimed at stopping China from "manipulating" its currency.
Rebuffs external pressures
Without directly mentioning the United States, Wen made clear that Beijing was in no mood to surrender to any demands from Washington and might even be girding for a fight.
"I can understand some countries' desire to raise exports, but what I do not understand is depreciating one's own currency and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism," he said.
However, Wen pressed Beijing's own worries about Washington policy, as he did at last year's news conference
"We are very concerned about the lack of stability in the US dollar. If I said I was worried last year, I must say I am still worried this year," said the premier, in the precise, school master-like tone that has helped earn him the nickname among Chinese of "Grandpa Wen."
China is the world's biggest holder of US Treasury debt, holding $US894.8 billion ($A975.7 billion) worth.
"We cannot afford any misstep, no matter how slight, in our investments. US debt is guaranteed by the US government, so I hope that the United States will take concrete steps to reassure international investors," he said.
Beijing and Washington have also recently been at odds over new US arms sales to Taiwan, the self-ruled island China claims as its own territory, and Obama's meeting in the White House with the Dalai Lama, the exiled Tibetan leader reviled by Beijing.
"The responsibility for the serious disruption in US-China ties does not lie with the Chinese side but with the US," Wen said in answer to a question about their ties.
Domestic worries weigh
Wen also stressed that domestic worries weighed on policy.
"I have said that if there is inflation, plus unfair income distribution and corruption, they will be strong enough to affect social stability and even the stability of the state's power," he said. "It will be an extremely difficult task for us to promote steady and fast economic growth, adjust our economic structure and manage inflation expectations all at the same time."
The ruling Communist Party has sought to use the Party-run parliament to promote plans to raise welfare spending for farmers and other poorer citizens, even as the government tightens its belt after a burst of feverish spending last year.
But the parliament meeting has coincided with the release of data suggesting China faces inflationary pressures that could require more intensive policy tightening.
China escaped the worst of the global slump by ramping up credit, slashing interest rates and launching a four trillion yuan ($US585 billion) infrastructure stimulus programme in late 2008.
Its economy grew 8.7 per cent last year as a result, by far the fastest pace of any major country. But price increases have followed in the wake of that burst of spending and easy credit.
Consumer price inflation rose to 2.7 per cent in the year to February from 1.5 per cent in the year to January, spurting to a 16-month high. Rising housing prices have also stoked domestic disquiet. The government wants to limit inflation for the whole year to three per cent.
More domestically driven growth, led by consumers more confident about their healthcare, incomes and welfare, is needed to keep the world's third-biggest economy growing at a solid pace, Wen told the parliament on its opening day on March 5.
Wen unveiled rises of 8.8 per cent on social spending and 12.8 per cent on rural outlays, more than the rise of 7.5 per cent in the military budget, to narrow the wealth gap economists blame for dampening domestic consumption.
Disclosure: no positions