China seen allowing stronger yuan in 2010

17. February. 2010

WASHINGTON - Beijing is likely to let its currency begin rising in value again this year in response to growing pressures at home and abroad, two U.S. private sector specialists on China said on Wednesday.

"I think China has been waiting for its exports to resume growth, which they started to do in December. That, I think, gives them the domestic cover they need to resume (a) gradual appreciation," John Frisbie, president of the U.S.-China Business Council, said during a panel discussion.

President Barack Obama pushed China's exchange rate practices to the top of the bilateral agenda this month when he complained countries that undervalue their currency put U.S. companies at a huge competitive disadvantage.

That added to a growing list of issues straining U.S.-Sino ties, including Obama's plan to meet with Tibet's exiled spiritual leader, the Dalai Lama, on Thursday.

Many Western economists maintain that China's currency is undervalued by 25 to 40 percent, giving Chinese companies an unfair advantage in international trade.

Charles Freeman, a former U.S. trade official now at the Center for Strategic and International Studies, said he agreed Beijing would allow the yuan to rise gradually this year "as long as (its) exports don't drop through the floor."

Many within China who "are deeply upset that they continue to have to spend hundreds of billions of dollar every year" to suppress the value of the currency, Freeman said.

"So you know, there are pressures internally in China to appreciate the renminbi for its own purposes and I'll we'll see an appreciation this year," said Freeman, who worked on China issues at the U.S. Trade Representative's office.

Beijing allowed its currency to rise about 20 percent between July 2005 and July 2008, but put on the brakes to help stabilize its exports when the global financial crisis hit.

Obama's recent comments have raised speculation his administration might label China a "currency manipulator" in an semiannual Treasury Department report due on April 15.

"My gut is it doesn't out-and-out name China a currency manipulator, but it comes awful close," Freeman said.

"I think the administration's approach is going to be to shake a big stick on appreciation and, when they move, declare victory," he said.

But for all the political attention China's exchange rate gets in Washington, it's "never a Top Ten issue" for U.S.-China Business Council members, Frisbie said.

A far bigger concern is China's practice of rebating value-added taxes on exports, he said.

Wednesday's panel discussion focused mostly on a Chinese proposal to promote its high-technology sector by excluding foreign companies from its vast government procurement market unless they establish Chinese brands and transfer research and development of new products to China.

Freeman, a former assistant U.S. trade representative in charge of China, said the United States has lost considerable leverage over the Asian manufacturing giant in recent years.

U.S. negotiators used to be able to threaten Congress would close the U.S. market to Chinese goods, but the Chinese "don't believe the threats any more," Freeman said.

That, plus the view of many in China that they have already surpassed the United States in economic might, makes it difficult for U.S. negotiators to change the country's behavior on any policy that is not a clear violation of World Trade Organization rules, he said.
[Reuters]