China () - China’s vice premier, leading annual economic talks with the U.S., signaled internal divisions over his government’s pledge to reduce reliance on overseas demand as the nation posted a wider trade surplus led by record exports.
“The biggest challenge for us in this respect is to make sure that everyone is on the same page,” Wang Qishan said in an interview on the “Charlie Rose” show airing on PBS and Bloomberg Television. “We need to come to the same conclusion that we must transform our economic development pattern.”
The remarks, in response to questions on when China might let the yuan rise and take steps to bolster domestic demand, may help explain why officials have limited its gains against the dollar to about 5 percent over the past year, less than half the Singapore currency’s advance. The April trade surplus risks adding to inflation pressures that Treasury Secretary Timothy F. Geithner said could be addressed through yuan appreciation.
“China appears to be absolutely no closer to the hallowed goal of rebalancing” its economy, said Alistair Thornton, an economist at IHS Global Insight in Beijing. The trade numbers “will likely provide a touch more ammunition for the U.S. in the talks, as Geithner argues that more needs to be done with the currency and interest rates,” he said.
The currency is a focal point of talks among Wang, Geithner and other officials from both nations meeting in Washington for the annual Strategic and Economic Dialogue. Geithner, also speaking on the Charlie Rose show yesterday, said China was “moving carefully” in appreciating the yuan and would come to the “right judgment” about continuing to raise its value as a way to fight inflation.
Yuan Gains
The yuan has risen about 10 percent in real terms because inflation in China is higher than in the U.S. It was 0.02 percent higher 6.4929 per dollar as of 4:06 p.m. Shanghai time. The Shanghai Composite Index of stocks closed 0.6 percent higher.
China reported a more-than-estimated $11.4 billion trade surplus for April, a report from the customs bureau showed today, compared with a surplus of $140 million the previous month and $1.68 billion a year earlier. Import growth slowed to 21.8 percent in April from a year earlier while exports grew 29.9 percent.
U.S. officials want the yuan to rise faster, saying the currency is a big contributor to a record trade deficit with China. The Obama administration and U.S. lawmakers say China’s currency policy gives the nation’s exporters an unfair competitive advantage, costing American jobs.
Politicizing the Yuan
Wang said his biggest worry about China’s relationship with the U.S. is that economic relations “become politicized” by issues such as the value of the yuan, and said Americans must recognize that much of China’s trade surplus with the U.S. comes from U.S., Japanese and European companies assembling products in China.
“Forget about the exchange rate,” said Wang, who is one of four vice premiers in China’s government and has responsibility for economics, finance and trade. “A large part of our surplus with the U.S. comes from processing trade, and the core components of those exports come from developed countries.”
Senator Sherrod Brown, a Democrat from Ohio, urged the administration to press China on the currency and also said Congress should pass legislation to protect American workers from an undervalued yuan. Brown and Senator Olympia Snowe, a Republican from Maine, have proposed a measure to allow additional sanctions to address currency issues.
Gradual Increase
“China’s unfair currency manipulation has gone on for far too long, and it’s clear that legislation is needed to level the playing field,” Brown said in a statement.
Comments from Chinese officials have highlighted the range of views within China on economic policy. People’s Bank of China officials have said a rising yuan helps damp inflation, in support of the currency’s gradual increase against the dollar, and Premier Wen Jiabao said last month that the exchange rate may play a role in reining in prices.
In contrast, Commerce Minister Chen Deming said that exchange-rate reform has been “robust” from the perspective of trade, referring to declines in China’s total trade surplus over the last three years and signaling a view that the currency’s rise should not proceed any faster.
The People’s Bank of China set the yuan’s reference rate at a record high of 6.4988 per dollar yesterday and allowed the currency to strengthen 0.9 percent in April, the biggest monthly gain this year.
Withstand Pressure
Geithner used the first day of the talks to emphasize signs of progress in relations between the two nations. On Charlie Rose, he said China is moving “gradually” on the yuan to avoid upsetting its economy.
“The Chinese economy is certainly in a position where it’s strong enough it can withstand the pressures that come with letting your currency rise,” Geithner said. If China doesn’t allow its currency to strengthen, then “China will face a higher risk of inflation going forward.”
Consumer prices in China grew 5.4 percent in March from a year earlier, the fastest pace in 32 months, partly driven by rising oil and food prices.
“As Secretary Geithner said, China is moving in the direction that the U.S. wants to see on the yuan,” Patrick Chovanec, an associate professor at Tsinghua University in Beijing, said in a Bloomberg Television interview. “I don’t think it is doing so because of U.S. pressure, I think it is doing so in response to domestic inflationary pressures.”
Wang said China’s inflation is “the most pressing problem we face right now” and is an issue the government needs to tackle this year. Its solution will involve not only monetary and fiscal policies, but also how China will shift its economic structure, he said.