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Posts Tagged ‘diplomacy’

Obama welcomes China’s move towards flexible yuan

Posted by Admin on June 20, 2010

US dollar bills are counted as yuan notes are seen at a bank in Huaibei, China, file pic

Many in the US say China is keeping the yuan low to boost exports

US President Barack Obama has welcomed China’s announcement that it will allow the exchange rate of its currency, the yuan, to become more flexible.

Mr Obama called it a “constructive step”, saying it would help boost the global recovery.

US politicians have long argued that the yuan is undervalued, giving China an unfair trade advantage.

The issue is expected to be raised at a summit of the G20 group of industrial and developing countries next week.

On Saturday, the Chinese central bank announced it would make its exchange rate mechanism “more flexible”.

The bank said the proposed reform had been made possible by the global recovery.

However, it gave no details about timing and ruled out any single large-scale revaluation of the yuan, saying there was “no basis for big fluctuations or changes”.

This is an important step but the test is how far and how fast they let the currency appreciate

Timothy GeithnerUS Treasury Secretary

The Chinese currency has been held at about 6.83 to the dollar since July 2008, drawing criticism that China was maintaining the currency at an artificially low level to help its exporters.

Commenting on China’s announcement, President Obama said it was “a constructive step that can help safeguard the recovery and contribute to a more balanced global economy”.

“I look forward to discussing these and other issues at the G20 summit in Toronto next weekend.”

US Treasury Secretary Timothy Geithner cautiously welcomed the move. “This is an important step but the test is how far and how fast they let the currency appreciate,” he said.

Under pressure

In April, Mr Geithner delayed a report that could label China a currency manipulator, in what was seen as an attempt to give Beijing time to reform its currency without appearing to do so under pressure.

A number of members of the US Congress believe the low yuan is directly affecting their local economies.

Responding to the announcement, Democratic Senator Charles Schumer said China’s statement was too vague.

“Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules,” he said.

The BBC’s Damian Grammaticas in Beijing says the announcement may be seen as an attempt to preempt criticism of China’s currency policies at the G20 summit in Canada, where Mr Obama will meet China’s President Hu Jintao.

China has kept the currency from rising by selling yuan for dollars and has built up massive foreign exchange reserves as a result.

The way China invested those reserves is seen by many economists as a key factor in the recent international financial crisis.

The head of the International Monetary Fund (IMF) Dominique Strauss-Kahn said China’s announcement was “a very welcome development”.

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Despite US Pressure, Beijing Stands Firm in Currency Spat

Posted by Admin on March 29, 2010

Despite US Pressure, Beijing Stands Firm in Currency Spat

by: Kit Gillet  |  Inter Press Service

Beijing – China may be under international pressure, especially from the United States, over the valuation of its currency, but is unlikely to back down in the short term given its worries about its export sector and the jobs that depend on it.

Thus far, the lines have been drawn in the disagreement between China and the United States over the yuan – and neither side seems willing to back down.

China pegged its currency at approximately 6.8 to the dollar in July 2008, mainly to aid the country’s export industry that was badly hit by decreasing global demand and the financial crisis.

On Mar. 15, 130 members of the U.S. Congress signed a letter urging the White House to label China a currency manipulator in its Apr. 10 treasury report, which would be the first step in imposing trade tariffs on Chinese export goods.

The letter stated, “The impact of China’s currency manipulation on the U.S. economy cannot be overstated.” It went on to suggest that the current exchange rate gave an unfair subsidy to Chinese companies at the direct expense of their U.S. counterparts.

China’s Commerce Minister Chen Deming has said the country would “not turn a blind eye” if it was labelled a manipulator, and that it might, in that eventuality, seek to litigate under the global legal framework.

Both countries’ leaders have also weighed in on the issue.

Yet China is unlikely to allow a rapid appreciation of the yuan, which some suggest is undervalued by as much as 40 percent.

“China believes that that a modest revaluation of its currency would have a scant effect on U.S. trade deficits, and that once it made an adjustment, it would be pressed again and again to do more,” wrote Jeff Garten, Juan Trippe professor of international trade and finance at the Yale School of Management, in a recent note.

As the world’s largest exporter, China’s growth depends substantially on its export sector. Any strong revaluation could hurt this industry, which accounted for roughly 27 per cent of Gross Domestic Product in 2009.

“It is in nobody’s interest – China’s, the United States’ or other countries’ – to see big ups in the renminbi (yuan) or big downs in the dollar,” Vice Commerce Minister Zhong Shan told the U.S. Chamber of Commerce in Washington on Wednesday.

“There is no need for us to discuss if it (the yuan) should be appreciated. What we should be concerned about is when and how it is,” Wu Xiaoqiu, assistant president of Renmin University and director of China’s Finance and Securities Institute, said in an interview with IPS. “The government needs to consider the competitiveness of companies in labour-intensive sectors,” he said.

The leading business publication ‘The 21st Century Business Herald’ reports that several government ministries, including the ministries of commerce and information, have been conducting pressure tests to gauge the impact of appreciation in key labour-intensive sectors, but none of their findings have yet been made public.

“Most export companies would rather have the yuan appreciate in one go rather than face the uncertainty of guessing the timing and the degree of gradual appreciation,” said Zhang Bin, a researcher at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.

But Zhang expressed concern that some exporters might report fake figures in order to protect their own interests.

China’s export industry suffered in the wake of the economic crisis, and while numbers picked up near the end of last year, Chinese officials are now suggesting that March 2010 could be the first month since 2004 that the value of the country’s imports exceeded that of its exports.

Cheaper competition from developing nations such as Vietnam and Bangladesh, along with a 2008 labour law that increases wages across China, has already hurt the Chinese export industry. Talk of a revaluation is seen by some as a hurdle too far.

“In the words of some of our members, the United States is ‘sharpening its knives and has a murderous air about it,’” said Zhang Yujing, president of the China Chamber of Commerce for Import and Export of Machinery and Electronic goods, at a press conference last week. “I expect many companies won’t be able to bear an appreciation now.”

Zhou Dewen, vice president of the China Middle and Small Enterprises Association, told the ‘Oriental Morning Post’ that the Chinese government should withstand pressure from abroad for at least two or three years.

“If the government fails, a large amount of middle and small Chinese enterprises, which have suffered from the ongoing financial crisis, will be closed and the workers will lose their jobs,” he said in an interview published in the ‘Post’ this week.

Not all share Zhou’s pessimistic view.

“An appreciation will hurt exports. But if appreciation is gradual and modest (we are talking about five to six percent here), I think the impact should be relatively small,” Wang Tao, head of China Economic Research for Union Bank of Switzerland (UBS) Investment Bank here, told IPS.

Wang suggested that yuan appreciation, along with more flexibility, can help promote domestic consumption in China, and divert investment from export-oriented industries.

Chinese exporters are estimated to make a return of three to five percent on sales. Any substantial appreciation of the yuan could see the closure of many factories and would add to China’s unemployment rate, which a recent China Academy of Social Sciences report put at 9.4 percent.

It would also force the raising of export prices, which would in turn affect U.S. consumers, by far the largest buyer of China-made products.

Decades of free spending by U.S. consumers has left the U.S.-China trade deficit standing at roughly 227 billion dollars, down from a high of 268 billion dollars in 2008.

Chinese state media and many of its politicians have suggested that the U.S. government is merely looking for someone else to blame for its current woes. “They should not blame the problems they have by finding a scapegoat in China,” China’s new ambassador to the United Nations, He Yafei, told a briefing in Geneva earlier this month.

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Obama, Medvedev seal deal on nuclear arms pact

Posted by Admin on March 27, 2010

Obama, Medvedev seal deal on nuclear arms pact

Sat, Mar 27 10:33 AM

US President Barack Obama and Russian President Dmitry Medvedev sealed a landmark arms-control treaty on Friday to slash their countries’ nuclear arsenals by a third and will sign it on April 8 in Prague.

After months of deadlock and delay, a breakthrough deal on a replacement for the Cold War-era START pact marked Obama’s most significant foreign policy achievement since taking office and also bolsters his effort to “reset” ties with Moscow.

Obama and Medvedev put the finishing touches on the historic accord during a phone call, committing the world’s biggest nuclear powers to deep weapons cuts.

“I’m pleased to announce that after a year of intense negotiations, the United States and Russia have agreed to the most comprehensive arms-control agreement in nearly two decades,” Obama told reporters.

But he could still face an uphill struggle for ratification this year by the US Senate, where support from opposition Republicans will be hard to come by after a bitter fight that ended in congressional approval of his healthcare overhaul.

In Moscow, Medvedev hailed the agreement — which also must be approved by Russian lawmakers — as reflecting a “balance of the interests of both countries.”

Russia made clear, however, that it reserved the right to suspend any strategic arms cuts if it felt threatened by future US deployment of a proposed Europe-based missile defense system that Moscow bitterly opposes.

The agreement replaces a 1991 pact that expired in December. Each side would have seven years after the treaty takes effect to reduce stockpiles of their most dangerous weapons — those already deployed — to 1,550 from the 2,200 now allowed and also cut their numbers of launchers in half.

Secretary of State Hillary Clinton said the new pact sends a message to Iran and North Korea, both locked in nuclear standoffs with the West, of a commitment to thwart nuclear proliferation.

“WE INTEND TO LEAD”

“With this agreement, the United States and Russia — the two largest nuclear powers in the world — also send a clear signal that we intend to lead,” Obama said.

Signaling prospects for cuts by other nuclear powers, British Foreign Secretary David Miliband said: “As soon as it becomes useful to do so, the U.K. stands ready to include our nuclear arsenal in a future multilateral disarmament process.”

German Foreign Minister Guido Westerwelle called it “a milestone that will promote overall nuclear disarmament,” and European Commission President Jose Manuel Barroso congratulated Obama and Medvedev on “this historic agreement.”

The treaty adds another chapter in a quarter century of efforts to make the world safer through nuclear arms control, after a 1986 summit between U.S. President Ronald Reagan and Soviet President Mikhail Gorbachev laid the groundwork.

Obama and Medvedev will sign the new Strategic Arms Reduction Treaty (START) in Prague, capital of the Czech Republic, a former Soviet satellite now in NATO.

The April 8 meeting will be close to the anniversary of Obama’s speech in Prague offering his vision for eventually ridding the world of nuclear weapons, and should help build momentum for a nuclear security summit he will host in Washington on April 12-13.

The treaty does not impose limits on US development of a missile defense system in Europe, which had been a major sticking point in negotiations. Washington insists such an anti-missile shield would be aimed at Iran, not at Russia.

“Missile defense is not constrained by this treaty,” US Defense Secretary Robert Gates said.

But Russian Foreign Minister Sergei Lavrov said either side has the right to stop reducing offensive nuclear weapons if the other beefs up its missile defenses — a warning of consequences if Moscow sees a threat to its security.

“DARKEST DAYS”

Obama said the new treaty would help Washington and Moscow put behind them the “darkest days of the Cold War.”

“It cuts, by about a third, the nuclear weapons that the United States and Russia will deploy,” Obama said. “It significantly reduces missiles and launchers. It puts in place a strong and effective verification regime.

“And it maintains the flexibility that we need to protect and advance our national security, and to guarantee our unwavering commitment to the security of our allies.”

The new pact could strengthen Obama politically, building on the domestic political victory he scored this week when he signed sweeping healthcare reform into law.

Obama still faces a fight to get a two-thirds majority for Senate ratification of the treaty at a time of bipartisan rancor after the bitter fight over healthcare and other parts of his domestic agenda.

Republicans have criticized his national security policies and are in no mood to cooperate, especially ahead of November congressional elections where they hope to score big gains.

Despite that, Clinton insisted the prospects were good for bipartisan support for the treaty.

The final deal also signaled improved relations with Russia that had been badly frayed under Obama’s predecessor George W. Bush. Obama needs Moscow onboard for any further international sanctions against Iran over its nuclear program.

It showed that Moscow and Washington can find a way to work together despite differences over a host of issues from Georgia to missile defense in Europe.

Reuters

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