Don't meddle in yuan, China tells the world

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Don't meddle in yuan, China tells the world
Reuters in Beijing and Washington
Jun 19, 2010
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China told the rest of the world yesterday not to meddle with the way it manages the yuan, setting the stage for a clash with its biggest trading partners at next week's Group of 20 summit.

Shortly after the Chinese remark, US President Barack Obama released a letter to his G20 colleagues that zeroed in on prickly policy differences over China's currency stance and debt-wary Europe's rush to rein in bulging budget deficits.

World leaders gathering in Toronto next week are struggling to maintain the crisis-forged unity that has been credited with preventing another Great Depression. Now that the global economy is on the mend, divisions are beginning to show.

Foreign Affairs Vice-Minister Cui Tiankai, who is in charge of preparing for the summit, said the yuan was "China's currency, so I don't think it is an issue that should be discussed internationally".

Zhang Tao , head of the international department at China's central bank, said in the same press conference that that as far as he knew, the yuan had never been discussed at previous G20 summits.

"The Chinese government will decide on its foreign-exchange-rate policy according to both domestic and global economic situations," Zhang said.

China has kept the yuan, also known as the renminbi, steady at around 6.83 per US dollar for almost two years to help its exporters ride out the global financial crisis. Many Western economists believe it is undervalued by up to 40 per cent.

Obama, under pressure from some lawmakers who accuse his administration of soft-pedaling on China, said in the letter to G20 colleagues dated on Wednesday that free-floating currencies were essential to global economic activity, a thinly veiled reference to the yuan.

"The signals that flexible exchange rates send are necessary to support a strong and balanced global economy," Obama wrote in the letter.

"Market-determined exchange rates are essential to global economic vitality."

A White House spokesman later said the world would be better off if Beijing implemented a market-based exchange rate.

"This is obviously going to be an issue that we'll continue to discuss," White House spokesman Bill Burton told reporters on board Obama's aircraft as it flew to Ohio.

China began drawing a line in the sand about what should be discussed at the G20 meeting on Thursday, when its Foreign Ministry spokesman Qin Gang warned that the yuan issue should not be brought up.

The Obama administration has stopped short of accusing China of manipulating its currency to give it a trade advantage, something that some members of Congress have urged.

The US Treasury Department delayed its currency report to Congress, which was due in April, angering some lawmakers who think the administration is dragging its feet.
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