Bloomberg News

Currency Report Delayed at ‘Delicate Time’ for U.S.-China Ties

October 15, 2011

(For more on the Group of 20 meetings, {GMEET <GO>}.)

Oct. 15 (Bloomberg) -- The U.S. postponed a report on the exchange-rate policies of its trading partners, including China, until after global meetings scheduled for this month and next.

The delay will “give us a chance to assess progress following several international meetings,” including this week’s Group of 20 finance ministers’ session in Paris, a G-20 summit in November and meetings involving Asia-Pacific finance ministers and leaders in November, the Treasury Department said in a statement yesterday, a day before the report was due.

Treasury Secretary Timothy F. Geithner has been pushing China to allow its currency to strengthen, saying that would help support global growth, while avoiding actions that could cause friction with the world’s No. 2 economy and the second- largest U.S. trade partner.

“The delay clearly reflects that it’s a delicate time,” said Paul Ballew, chief economist at Nationwide Mutual Insurance Co. in Columbus, Ohio. “We’re trying to make sure we’re creating a fair-trade environment and not creating undue tension within the system. And we don’t want to further upset financial markets by creating a trade war with China right now.”

The Treasury frequently delays the report. The last one, due April 15, was released May 27. The previous one, due Oct. 15, 2010, was released Feb. 4, 2011.

‘Very Supportive’

The Obama administration is “very supportive” of the goals of a Senate bill aimed at punishing China for keeping the yuan undervalued, Geithner said this week. Still, Congress should address concerns about “the consistency of some provisions with our international commitments.”

The Senate voted 63-35 on Oct. 12 for the legislation, which would let U.S. companies seek duties to compensate for “misaligned” currencies. House Speaker John Boehner said he has “grave concerns” with the bill because it might start a “trade war,” casting doubt on whether it will become law.

Ma Zhaoxu, a spokesman for China’s foreign ministry, this week condemned the measure as “protectionism and a serious violation of World Trade Organization rules.”

Chris Fernandes, a San Ramon, California-based vice president at Bank of the West focusing on foreign exchange and capital markets, said, “Every year, we hear the same things: the Chinese currency is too low, we’re losing jobs to China.”

“The Chinese invariably turn around and point fingers at the U.S. and all of that ends up having minimal impact on foreign exchange markets,” he said. Bank of the West is based in San Francisco.

Undervalued Currency

China has been relying on an undervalued currency to keep its exports cheap in overseas markets and drive the fastest growth among the world’s major economies. China’s economy expanded 9.5 percent in the second quarter from a year earlier.

The U.S. trade deficit with China in August rose to a record $29 billion as imports from the nation were the highest ever.

The yuan has appreciated 10 percent, adjusted for inflation, since mid-2010, a pace that’s too slow, Geithner said this week.

The yuan rose for a second week after a government report showed that inflation exceeded 6 percent for a fourth month. The yuan gained 0.12 percent this week to 6.3785 per dollar in Shanghai, according to China Foreign Exchange Trading System.

China’s central bank limits conversion of the yuan onshore for investment purposes and restricts daily movements to 0.5 percent from its daily fixing. Intervention by buying and selling the currency has contributed to the buildup of $3.2 trillion of foreign-exchange reserves, the world’s largest. Chinese investors hold $1.2 trillion of Treasuries.

--Editors: Christopher Wellisz, James Tyson

%CNY %USD %HKD

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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