What a difference a day makes! Only
yesterday, Hillary Clinton and PRC Foreign Minister Yang Jiechi were allegedly having a heart-to-heart on currency matters at the United Nations. (Aww, ain't that sweet?) However, the former's boss has apparently annoyed the Chinese foreign ministry sufficiently to warrant a verbal intervention. (As an aside, can we really take this latest verbal exchange seriously when it's not the monetary authorities of China who've gone on the offensive here?) As yesterday's news noted, Obama wants a faster pace of yuan revaluation, while US Treasury Secretary Tim Geithner is rumoured to be rallying other countries ahead of the South Korea G20 to press China on currency matters. On to the
fightback:
China's foreign ministry told the United States on Tuesday to stop pointing its finger at Beijing and pushing for a stronger yuan, saying Washington should focus on spurring its fragile economy. The strong-worded statement by the ministry came as President Barack Obama kept up tough American rhetoric ahead of mid-term U.S. congressional elections in November and as the yuan extended gains to a ninth day -- its longest rally since it was revalued in July 2005.
"Recently, there are some discordant voices in the U.S. criticizing the yuan exchange rate, and saying it (the U.S.) would adopt any possible means to press for yuan appreciation. It is unwise and also near-sighted," the ministry said in a statement on its website. "The trade imbalance between China and the U.S. is not decided by exchange rate but by globalization. Yuan appreciation cannot solve the U.S. trade deficit, on which the Americans have also reached consensus..."
On Monday, President Barack Obama weighed in, saying that Beijing had not done enough to raise the value of its currency. U.S. Treasury Secretary Timothy Geithner vowed last week to rally world powers ahead of a G20 meeting in South Korea in November to push China for trade and currency reforms.
The Chinese foreign ministry said the United States, a major currency issuer, should instead focus on its own economic recovery and put its fiscal house in order to help maintain stability of its own currency. China has been trying to boost its imports from the United States, but the latter must relax its restrictions on high-tech sales to China, it said. [For more on this quarrel over "dual use" technologies being exported from the US to China, see an earlier post...]
The ministry added that domestic expectations for yuan appreciation were not strong, and that a stronger currency would do little to resolve the Sino-U.S. bilateral trade imbalance. The yuan rose on Tuesday for a ninth straight day -- its longest string of gains since its landmark revaluation in July 2005 -- and broke through key resistance at 6.70 per dollar for the first time since its revaluation.
However, a senior Chinese government economist warned that the rise in the yuan, which has gained 1.35 percent since September 9, could soon hit a speed bump. Chinese officials have repeatedly warned that any sharp currency appreciation could hit exporters and trigger job losses.
So yuan gains have been slow but steady in spite of the rhetorical flourishes--by the MFA, not the PBoC it must be noted again. Also keep in mind that the dollar is receiving an almighty
shellacking in currency markets after the Fed indicated in its most recent FOMC statement that it stands ready to undertake extraordinary measures if deemed necessary. In plain English, I guess that means
prop up the dollar via intervention to the rest of the world. Once more, who's the real "currency manipulator" here?
The dollar fell sharply against the yen and euro on Tuesday after the Federal Reserve suggested it stood ready to further stimulate the U.S. economy, raising fears it may print more dollars to do so. The euro surged to a 6-week high against the dollar and broke above its 200-day moving average for the first time since January, suggesting more gains were ahead. The yen powered higher against the greenback as well, breaking through the 85 level for the first time since Japanese authorities intervened to weaken the currency last week.
The Fed statement suggested the U.S. central bank may be preparing to do more to keep unemployment from rising and prices from falling. The sentiment confirmed [currency] investors' fears ahead of the meeting.
And speaking of the foreign affairs ministry, China is apparently not done with giving America a good ol' fashioned tongue-lashing. Word on the street (NHK Tokyo, to be more precise) has it that the United States is working with ASEAN member countries party to the dispute with China over contested South China Sea islands to craft a statement over the coming days. Alike the US seeking allies in getting China to revalue, so is it trying to play "good cop" by currying favour among Southeast Asian nations. The big catch as I noted
earlier is that the US is hardly in a position to act on the matter, being neither a contestant of dominion over the islands nor a signatory to laws governing maritime territorial disputes.
In any event, the rhetoric emanating from the PRC is again quite
strident:
China told the United States not to interfere in a regional dispute over claims to the South China Sea, saying it would only complicate the matter. Japan's NHK TV reported last week that the United States and Southeast Asian countries may announce a joint statement on September 24 that obliquely presses China over its recent activities near disputed isles in the South China Sea. China has been increasingly strident in asserting its territorial claims, especially maritime ones...
"We express great concern about any possible South China Sea announcement made by the United States and the ASEAN countries," Foreign Ministry spokeswoman Jiang Yu told a regular news briefing. ASEAN is the 10-member Association of Southeast Asian Nations. "We resolutely oppose any country which has no connection to the South China Sea getting involved in the dispute, and we oppose the internationalization, multilateralization or expansion of the issue. It cannot solve the problem, but make it more complicated," she said.
Washington has criticized Chinese claims to swathes of the South China Sea, where Taiwan and several ASEAN members including Vietnam, Malaysia and the Philippines also assert sovereignty. China says it has sovereignty over the seas, home to valuable fishing grounds and largely unexploited oil and natural gas fields. It reacted with anger in July when the United States brought up the issue at a regional meeting, further souring ties between Beijing and Washington already under strain from spats over the value of the Chinese currency, Tibet and Taiwan.
While I certainly doubt whether China's expansive claims to the entirety of the South China Sea would stand up to adjudication at the International Court of Justice, I hardly see how the US, ah,
intervention improves matters. As before, I believe it's running interference in an attempt to partly mitigate its diminishing economic stature in the region. Is this world big enough for China and the US? High noon approaches at the Not-So-O.K. Corral.
