Hu Attending Summit Lessens Risk of China `Manipulator' Charge, CICC Says
China President Hu Jintao's plan to attend a nuclear summit in Washington reduces the likelihood the country will be labeled a currency "manipulator," according to China International Capital Corp.
"In the past few weeks, rhetoric has turned sour from both sides, but this development is one of the initial signs" relations are thawing Hao Hong, Beijing-based global equity strategist at China International Capital Corp., said in an e- mailed response to queries.
Avoiding the manipulator tag may give China further scope to end its peg of the yuan to the dollar. Ties between China and the U.S. deteriorated this year over arms sales to Taiwan, pressure for the yuan to gain, President Barack Obama's meeting with the Dalai Lama and Google Inc.'s decision to pull out of China over censorship and privacy concerns.
"The latest development should make it more likely for Beijing to start moving away from the renminbi's current de facto peg within the next few months, if not weeks," Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong, wrote in a report yesterday. "Since China is growing much faster than most of its trading partners, keeping the de facto peg for too long will only invite more protectionism."
Obama urged Hu in a telephone call late April 1 Washington time to implement plans to help balance global growth, according to a White House statement. Leaders from the Group of 20 emerging and developed nations in September pledged in a joint statement to address financial and demand imbalances to reduce the risk of economic crises; the document didn't include any specific commitments on currency policy.
Obama "emphasized the importance of the United States and China along with other major economies implementing the G-20 commitments designed to produce balanced and sustainable growth," the White House said. He also welcomed Hu's decision to come to the Washington gathering.
Premier Wen Jiabao's government has kept the yuan, a denomination of the renminbi, at about 6.83 per dollar for the past 20 months to aid exporters amid the global crisis.
"Expectations for yuan appreciation have strengthened accordingly," Hao said, referring to the impending Hu visit.
Yuan forwards are poised for the biggest weekly gain in almost three months, with 12-month non-deliverable contracts rising 0.2 percent to 6.6501 per dollar as of 10:42 a.m. in Hong Kong, reflecting bets the currency will strengthen 2.6 percent from the spot rate of 6.8260, according to data compiled by Bloomberg.
The U.S. Treasury Department will decide in an April 15 report whether to label China as manipulating its currency, a designation not invoked since 1994. Nouriel Roubini, a professor at New York University, said last week the U.S. and China are on a "collision course" over the value of the Chinese currency and investors are underestimating the disruptions for global financial markets.
The Obama administration steered clear of the debate over China's currency policy in an annual report on global trade barriers this week, focusing instead on procurement and import restrictions that harm U.S. companies.
The report doesn't mention China's policies on valuing its currency as one of the impediments to American exports. U.S. lawmakers have pressed the Obama administration to pursue retaliatory action on the yuan peg through import tariffs.
'Bullish' for Stocks
China is likely to allow the currency to appreciate before raising interest rates, which would be "bullish" for the Chinese stock market, CICC's Hong said.
The central bank will raise rates by the end of this month after the government reported higher-than-expected consumer- price gains in February, according to 11 of 15 economists surveyed by Bloomberg News. The central bank has twice raised lenders' reserve requirements this year while keeping benchmark interest rates unchanged.
The benchmark Shanghai Composite Index had its worst quarterly performance in the past three months since entering a bear market last August, in part on concern policy makers will withdraw their stimulus measures to stem inflation.
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