WASHINGTON (Reuters) - President Barack Obama said on Tuesday that China had yet to set a timetable for reforming the yuan despite “frank” conversations with President Hu Jintao and a Chinese spokesman said Beijing would not bow to foreign pressure on currency reform.
Obama spoke at a news conference at the end of a nuclear security summit in Washington where the two leaders met on Monday for the first time since Sino-U.S. tensions over the yuan had threatened to escalate into a serious dispute.
“With respect to the currency issue, President Hu and I have had a number of frank conversations,” Obama told reporters. In diplomatic terms, the word “frank” typically means neither side held back.
“I have been very clear of the fact that it is my estimation that the RMB (yuan) is undervalued, and that China’s own decision in previous years to begin to move toward a more market-oriented approach is the right one,” Obama said.
“So I don’t have a timetable, but it is my hope that China will make a decision that will ultimately be in their best interest.”
Hu did not make public remarks on the yuan in Washington on Tuesday, but Vice Foreign Minister Cui Tiankai reiterated Hu’s assertion the previous day that the currency decision was an “internal affair” and would be made based on China’s economic situation.
“On this issue it is not justified for outsiders to exert pressure and we will not take action by bowing to this pressure,” Cui told a news briefing in Washington.
Blaming China’s exchange rates for global economic problems is “just a like a situation where you have caught a cold, but ask your neighbor to take the medicine,” Cui added, in China’s latest public pushback against U.S. pressure over the yuan.
The two leaders chose their words carefully over the two-day summit and, in the view of investors, left the door open for Beijing to resume appreciation of the currency in coming weeks.
Many mainstream economists believe the currency is undervalued by as much as 40 percent and that China’s massive current account surplus shares blame with the U.S. deficit for financial imbalances behind the global economic turmoil.
Although Hu insisted that China would base any decision on the yuan on its own economic needs, he also made clear that Beijing was committed to change.
Notable by its absence in Hu’s reported comments was a declaration, previously a stock phrase for Chinese leaders, that a stable yuan was benefiting the global economy.
U.S. Treasury Secretary Timothy Geithner on Tuesday urged China to answer international concerns about exchange rate policy, but also said the decision was up to Beijing.
“We are going to be ... very forceful and aggressive in making sure that we are promoting changes that offer the prospects of a level playing field,” Geithner told a Washington meeting of the American Society of News Editors.
The U.S. trade deficit with China narrowed to its lowest level in nearly a year in February as imports from China dropped, possibly prompting China to resist revaluing its yuan currency substantially.
Some analysts dismissed the one-month’s data as a blip.
The Alliance for American Manufacturing, a coalition of labor and industry groups, urged members and allies to besiege Congress with letters demanding legislation to allow companies to seek “countervailing duties” to offset the subsidy impact of China’s exchange rate regime.
Last week, Senate Majority Leader Harry Reid’s office said the Senate could vote on a version of that bill by the end of May if China had not significantly revalued the yuan by then.
Democrats in the House of Representatives appear willing to give the Obama administration until the end of June to see if it can produce results, but also are prepared to consider legislation if China does not revalue by much.
London-based HSBC, one of the world’s largest banking and financial services companies, said it expected the Chinese yuan to rise in the second quarter, but also cautioned that if China did not move by then “political and economic cycles could make it difficult for it to occur at all in 2010.”
The yuan edged down in the offshore forwards market on Hu’s comments and Asian currencies, which have gained in recent weeks on expectations of a Chinese revaluation, also dipped. The Malaysian ringgit, often used as a proxy for the yuan, dropped 0.8 percent.
Investors were, however, still positioning themselves for a gradual resumption of yuan appreciation.
Beijing has frozen the yuan’s exchange rate against the dollar since mid-2008 to help cushion its economy from the global downturn.
The U.S. Treasury this month delayed publication of a report that politicians had urged should be used by Obama to name China a currency manipulator, potentially paving the way for punitive trade measures.
Additional reporting by Simon Rabinovitch in Beijing in Caren Bohan in Washington; Writing by Howard Goller and editing by David Storey