U.S. sees China sending yuan higher - Hawaii News Now - KGMB and KHNL

U.S. sees China sending yuan higher

By Howard Dicus - bio | email

HONOLULU (HawaiiNewsNow) - A sudden and to some extent secret meeting of Chinese and U.S. officials over the weekend is being read as a sign China is ready to take more steps toward allowing its regulated currency to rise on global markets.

The Chinese yuan is considered by international currency experts to be undervalued by at least 20%, probably more, due to Beijing's official policy of setting a trading value for it rather than allowing it to float freelance on world currency exchanges.

Following a meeting of G20 finance ministers in South Korea, Treasury Secretary Timothy Geithner flew to the Chinese port of Qingbao at the invitation of Vice Premier Wang Qishan.

They met at the airport, but kept details of the meeting secret. The only official joint statement said they "exchanged views" on their economic relations. The Wall Street Journal said flatly they were there "for currency talks."

The American position appears to be sympathetic, while still seeking more revaluing of of the yuan by Chinese officials who know there is increasing sentiment by U.S. lawmakers to restrict Chinese imports.

"They need the flexibility to run their policies in a way that makes sense for China," Geithner said in an interview on Bloomberg Television while still in Korea. "That requires that their exchange rate move up over time." He said he felt China was now committed to moving the international value of the yuan up "over time."

In the Korea meeting, Geithner was sharper, urging the nation's major trading nations to "refrain from exchange rate policies designed to achieve competitive advantage."

The London Guardian called this "a thinly veiled attack on China."

In its report on the Qingbao airport meeting, the official Xinhua news agency quoted a Chinese academic as saying "their meeting will help both sides to... tackle the global financial crisis in a cooperative spirit."

The Xinhua report noted that the U.S. government has postponed release of a currency exchange report that might provide members of Congress with impetus to take punitive trade action against China. It also said Wang and Geithner have been talking by phone a lot.

The artificially low value of the yuan has given China years of explosive economic growth at the expense of the rest of the world, as millions of manufacturing jobs were moved from America, Europe, Japan, Korea and Taiwan to China.

Good wages could be paid to Chinese workers for comparatively few dollars, euros or yen, so it became cheaper to make something in China and ship it to California for sale than to make it in California.

Last year, the United States alone had a $227 billion trade deficit with China.

At a time when Hawaii is trying to develop Chinese tourism, any upward adjustment to the exchange value of the yuan is important.

The more the yuan is worth on currency exchanges, the more dollars it will buy. So any further upward adjustment by China will make Hawaii more affordable to Chinese visitors.

A key concern for China is that it holds so much of the debt of the U.S. government, and the Federal Reserve Board, by controlling monetary policy within America, has the power to reduce the value of that debt. And, since China has become manufacturing exporter to the world, it does not benefit from an economic slump in the rest of the world.

A full-fledged G20 economic summit will be held, also in Seoul, Nov. 11-12.

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