China says will "strengthen" yuan's trading flexibility

SHANGHAI Sat Nov 19, 2011 10:28am EST

A 100 yuan note is surrounded by other 100 yuan notes in Beijing, in this file picture illustration taken March 22, 2011.  REUTERS/Jason Lee/FIles

A 100 yuan note is surrounded by other 100 yuan notes in Beijing, in this file picture illustration taken March 22, 2011.

Credit: Reuters/Jason Lee/FIles

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SHANGHAI (Reuters) - China will make the yuan more flexible in either direction and recent reforms to make the currency more market-oriented have begun to achieve some results, Premier Wen Jiabao said on Saturday.

The comments probably do not signal an imminent widening of the yuan's daily trading band, but they underscore Beijing's intention to introduce two-way fluctuations in the yuan to dampen expectations that China's currency could only appreciate.

Pointing to recent bets in overseas markets that had caused the yuan to hit the bottom end of its trading band a number of times, Wen said such fall in the yuan "could not have been engineered."

"China will continue to closely monitor the yuan's trading movements ... and will strengthen yuan's trading flexibility in either direction," the premier was quoted as saying in an evening news bulletin on state broadcaster CCTV.

Wen also told U.S. President Barack Obama that the trade imbalance between the two countries was a structural issue and that maintaining the healthy development of bilateral trade was essential for both countries and the world, according to the broadcast.

Wen's comments on the yuan were in line with recent central bank moves to encourage the yuan's value to fluctuate more widely within the daily trading band. The People's Bank of China (PBOC) allows the yuan to rise or fall 0.5 percent from its daily mid-point.

Some analysts and traders have argued that the central bank has been laying the groundwork for a widening of the trading band, which would allow China to say in the face of renewed U.S. pressure over the yuan that it is indeed moving ahead with reform to loosen its grip on the currency.

But other analysts believe that China will opt to widen the trading band only when upward pressures on the currency ease in line with a narrower trade surplus and lower capital inflows -- in other words, no time soon.

China's yuan currency -- also known as the renminbi -- has gained about 40 percent in real effective exchange terms since Beijing abandoned its peg to the U.S. dollar in 2005.

Chinese leaders have repeatedly rejected calls from the United States and other rich countries to allow faster yuan appreciation.

Analysts said China appears to have quietly adjusted its currency policy in response to the deepening euro zone debt crisis, slowing the yuan's steady appreciation while trying to nip speculation of yuan depreciation.

The balancing act comes as inflationary pressures come off the boil and economic growth slows in the world's second-largest economy, giving Beijing more room to fine-tune policy.

White House officials said earlier in the day that Obama reiterated currency concerns to Wen during the meeting, which was held on the sidelines of a regional summit in Indonesia.

(Reporting by Fayen Wong; Editing by Don Durfee)

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Comments (8)
Mafettig wrote:
The Chinese would only benefit from returning the favor to its American help[ers). Have Americans not sent their raw and recycleable resources their way over the years, only to (in return) purchase from them these same resources in the guise of finished products? Without America, where would China be in the world? Without our repayments, what future would thier country have? We almost fell once or twice – it IS in the best interest of the Chinese government to return to an old but not forgotten slogan – BUY AMERICAN…and the world might also know, Americans are not for sale!!

Nov 19, 2011 11:24am EST  --  Report as abuse
RCPBKK wrote:
Mafettig,
This is certainly an entertaining perspective. I believe the operating principle behind this activity is called “capitalism.” It seems to shock Americans that Asia is really good at it, and the “whine” you want us to sip is a vintage version of economic altruism… where our competitors give America a hand because it is the return of a “favor.”
Were the raw materials of production given to China as a gift, or were they sold at a profit? I would guess no one sent them the means of manufacture for free.
As to America not being for sale, I am weeping with laughter that you used this in the context of a comment in regard to a country that owns about 39% of the USA, via extensive purchase of American debt, and direct investment.
Please look closely at the lower right corner of the flag you are waving…chances are, it says “Made in China.”

Nov 19, 2011 11:46am EST  --  Report as abuse
Before leaving office, U.S. President George H. W. Bush signed the North American Free Trade Agreement (NAFTA) On December 17, 1992 which Bill Clinton ratified and it became law. The era of American “free” trade had begun.

The result has been a hollowing out of American jobs, wealth, and innovation to foreign trading partners and no long-lasting sustainable economic recovery for America will occur until the broken business trade paradigm is fixed.

So what went wrong? Trade works when it economically benefits both nations. In order for this to occur; however, both nations must derive somewhat equivalent economic benefits from the trade relationship.

The problem with our current “free” trade paradigm is that commercial activity is unbalanced to the point where it depletes our economy while enriching others. This has resulted in a redistribution of American jobs, wealth, and innovation which has benefited our trading partners but hurt average Americans.

Our current “free” trade amounts to nothing more than a unilateral abandonment of trade barriers by the U.S. in the hopes that the developing world will grow from accessing our market to creating viable markets which U.S. companies can serve.

The problem is that this has not happened and is never going to happen. Foreign markets refuse to follow our lead on trade barriers and have materially denied access to U.S. companies engaging in anti-competitive behavior blocking us from free access to their markets while engaging in damaging activities that range from intellectual property theft to currency manipulation.

U.S. presidents have worked hard with the G20 to try and get foreign countries to open up their economies to the U.S. but it’s been a complete failure. Our largest trading partners, countries like China and India, consistently refuse to fully open their markets to U.S. companies as they are the primary beneficiaries of our unilateral “free” trade paradigm and have already grown middle classes and domestic businesses that serve their own markets. Our trade imbalances tell the story. We Americans sell more of our goods to the tiny country of Belgium than all of China.

Countries like Ireland and Sweden simply keep their tax rates below that of the United States (no matter how low we lower the tax rate on the wealthiest investors and public corporations foreign countries will simply offer a better rate because it costs them nothing to do so and they benefit from it at U.S. expense) and U.S. corporations can take advantage of it because of “free” trade and renounce American citizenship and move their administration overseas yet keep all their employees and operations here or keep their administration here and offshore the manufacturing, etc… overseas and shift their patents (U.S. loses what used to be closely guarded innovation to foreign host countries this way) OR DO BOTH and completely abandon the U.S. except for a place to dump their product of course.

The result of this has hurt all but the wealthiest American investors and the multinationals who have profited short-term from the hollowing out of America to maximize their wealth and the foreign countries and workers which benefit from this unilateral unfair trade paradigm.

But now even the wealthiest American investors are becoming nervous for the U.S. consumer market is in trouble and U.S. companies have no viable substitute for it. Furthermore, the cost of those foreign goods is rising as foreign demand for them increases negating the benefit of them to Americans. And our trade deficit continues to rise every year astronomically! In 2010, the U.S. trade deficit jumped 33% to almost $500 billion dollars. It is moving up past that for 2011.

Yet the most damaging aspect of the unilateral unfair trade paradigm is that U.S. companies and Americans are so undermined by the broken “free” trade paradigm that there’s little incentive to build or grow business in the United States anymore while existing American small business owners continue to realize decreased profits overall. This is why it must go or the U.S. economy will not recover.

Unfortunately, there is nothing on the horizon from either U.S. political party suggesting they even want to fix it.

There will be no long-term sustainable economic recovery for the American people until the broken business trade paradigm is fixed.

As things stand right now, we are looking at two futures. If the GOP “wins,” we will end like Mexico. If the Democrats “win,” we will end like China. Either way, the U.S. Gini index will continue to grow as a disparity between the wealthiest and everyone else continues. America as we know is slowly passing into history and the primary reason for it is a broken business trade paradigm.

The American people need to grasp this and demand in one voice systemic MAJOR trade reform back to a business trade paradigm that benefits Americans and the long-term U.S. national interest. It is the ONLY way to save the standard of living for Americans in the United States of America.

We have to return to an economy that out innovates, efficiently produces, and quickly supplies what the world needs and wants using American labor while protecting the innovation like we once did in the Cold War years so others don’t steal and use it against us like happens now. That’s what made us the strongest economy in the world and what will restore us to long-term jobful sustainable prosperity.

Nov 19, 2011 11:48am EST  --  Report as abuse
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