China Officials Wrestle Publicly Over Currency

26/03/2010 00:25

By KEITH BRADSHER

Published: March 25, 2010

The fight, mainly between the Chinese central bank and its Commerce Ministry, could decide the course of trade tensions between China and the United States. Many experts say they believe Beijing deliberately undervalues the renminbi, making Chinese exports more competitive on global markets and creating jobs in China at the expense of employment elsewhere.

The face-off began March 6, when the governor of the central bank stunned analysts by saying that the bank’s policy of keeping the renminbi at a constant exchange rate against the dollar was a “special” response to the global financial crisis. The new description suggested to many economists that the current value of the renminbi was temporary and that the central banker, Zhou Xiaochuan, was preparing the Chinese public for a stronger renminbi.

But other Chinese officials, particularly at the Commerce Ministry, have fought back in the past two weeks, stoking nationalism and anti-American sentiment by declaring that China will not be told what to do by the United States.

The debate is far from academic. In the coming weeks, the administration of President Barack Obama faces a series of politically sensitive deadlines set by Congress to decide whether to continue negotiating with China over currency and trade issues or to take a more confrontational stance, like officially naming China a currency manipulator.

If it labels the country a currency manipulator, the administration will face further congressional pressure to impose punitive tariffs on many Chinese goods.

So far, China’s media-savvy Commerce Ministry is trouncing the normally secretive central bank. Senior Commerce Ministry officials have spoken out every few days, saying that pressure to let the renminbi rise was “irrational.”

Those comments have brought on a surge of anti-American sentiment in Internet chat rooms and daily headlines on the front pages of Chinese newspapers asserting that China must not “back down.”

Borrowing a page from the playbook of some of the most sophisticated Western crisis management consultants, the ministry even sent the private cellphone numbers of eight Chinese academic experts on Chinese-American trade relations to reporters last week — although unlike Western consultants, the ministry did not ask or warn the academics before giving out their phone numbers.

Some Chinese economists outside the government have suggested in a gingerly fashion over the past year that China could find better uses for the hundreds of billions of dollars it spends buying U.S. Treasury bonds and other foreign reserves to keep the renminbi from rising against the dollar.

That investment in overseas bonds was equal to nearly a tenth of China’s entire economic output last year, even though Treasury securities have a return of only 0.13 percent to 4.73 percent currently. If the renminbi does eventually appreciate, the value of China’s huge foreign reserves will plunge in renminbi terms — a loss for which the central bank would most likely be blamed.

Maintaining the current level of the renminbi also means that the central bank cannot easily push up interest rates — a tactic countries normally use to battle inflation.

That may be necessary in China. Its economy is growing so fast, and China’s international competitiveness is so strong, that inflation is starting to appear. Exporters have more orders than they can fill — although imports have been rising even faster, as Chinese companies have stockpiled commodities as a hedge against inflation. Export-oriented provinces in coastal China raised their minimum wages 20 percent last week in a desperate bid to attract more workers from the country’s increasingly prosperous interior to run factory assembly lines.

These problems have made the central bank unenthusiastic about continuing to sell renminbi and buy foreign bonds so as to hold down the value of its currency, people close to the central bank said. But the bank has been reluctant to make its case in public, consistently rebuffing requests for interviews, and now may have missed its chance as the increasingly free Chinese business media have embraced the weak renminbi as a nationalistic symbol of Chinese sovereignty.

In many policy discussions between the United States and China over the past two decades, the Chinese government has seemed to maintain a single voice.

U.S. officials in a succession of administrations and Congresses have been less unified in their views.

But in the current debate, U.S. officials have been tightly disciplined — the Treasury, the Commerce Department and the office of the U.S. trade representative have said little. Chinese officials, on the other hand, have been vocal and less consistent.

“It seems like they are talking from different perspectives,” said Li Wei, the director of the American studies department at the Chinese Academy of International Trade and Economic Cooperation, speaking of the Chinese officials. He said he supported the Chinese government’s overall stance of resisting American pressure.

In the United States, the Treasury — and often, only the Treasury secretary himself — comments on the dollar. That has helped limit sudden fluctuations in the dollar’s value in currency markets.

But China has no such policy limiting which agencies or individuals can publicly address currency issues. For decades, currency policy has been the purview of the central bank, but the central bank is a politically weak institution. The People’s Bank of China is just one of many economic policy ministries and even lacks independent authority over monetary policy, unlike the U.S. Federal Reserve.

Exporters in China are still upset after their overseas shipments fell early last year for the first time since China began opening up trade in the late 1970s — and the Commerce Ministry has long been close to the country’s exporters.

Commerce Ministry officials say that they are following a broader trend in the Chinese government of greater responsiveness to the public. “Our ministry is doing a good job to be more open and more transparent — there is even an office in our ministry responsible for publicizing our policies,” said Chen Rongkai, the ministry’s division director for media.