19 October 2009

U.S. Concerned About Weak Yuan but Stops Short of Accusation

This article is excerpted from the 17 October 2009 edition of “The New York Times”.

The U.S. Treasury has said that China’s policy of keeping its yuan weak and its piling up of foreign exchange reserves were “serious concerns,” but it stopped short of saying China was manipulating the currency.

In a semiannual report to Congress on currency practices of major trade partners, the Treasury said it continued to believe that the yuan was undervalued.

But it concluded that no U.S. trade partner was a deliberate currency manipulator, a designation that could lead to negotiations resulting in the possibility of trade sanctions against an offender.
Treasury said that China, which pumped stimulus funds into its economy during the recession, had played an important role in anchoring the global economy this year.

It warned that lack of flexibility in the exchange rate for the yuan might be damaging as stimulus was withdrawn and overseas demand for Chinese-made goods returned….

Beijing has powered the country’s growth by aiming at the United States and other consumer markets with its exports, putting many producers in those markets out of business because they could not compete.

At the September meeting in Pittsburgh of the Group of 20 leaders of major economies, participants agreed on the importance of developing a “framework” for rebalancing global growth by having the United States save more and countries like China encourage domestic consumption….

But the report noted that China had about $2.1 trillion worth of foreign reserves and that the total had risen $186 billion in the first half of this year alone. It also said the United States would continue pushing Beijing for more flexibility in its currency, which is formally known as the renminbi….