U.S. Treasury Secretary Timothy F. Geithner said further appreciation in the yuan is important to aid a reshaping of China’s economy as significant as the nation’s opening of its markets in the 1970s.
“A stronger, more market-determined” currency would “reinforce China’s reform objectives of moving to higher value-added production, reforming the financial system and encouraging domestic demand,” Geithner said today at U.S.-China talks in Beijing. “Future economic growth will require another fundamental shift in economic policy” akin to that of more than 30 years ago, he said.
Chinese Premier Wen Jiabao’s remarks in March that the yuan may be near an equilibrium and the currency’s failure to gain against the dollar this year suggest that Geithner could be disappointed. The economic talks today and tomorrow are being overshadowed by the case of blind Chinese legal activist Chen Guangcheng after a deal that ended his stay in the U.S. embassy began to unravel.
Zhou Xiaochuan, governor of China’s central bank, said the market “has its own power to correct” any imbalances in the exchange rate. Zhou said he thought there were “no big differences” in the U.S. and China positions on the yuan even as they choose different words on the topic.
Commerce Minister Chen Deming told reporters that the rate has little impact on the nation’s trade surplus with the U.S., instead blaming U.S. export controls. “I hope I have enough patience for such a day” when controls will ease, Chen said.
Wen and the ruling Communist Party are trying to tilt growth more toward consumption and away from exports and investment, while gradually loosening controls on financial markets and the yuan, without harming their grip on power in a country of 1.3 billion people.
“The United States has a strong interest in the success of these reforms, as does the rest of the world,” Geithner said in opening remarks to the discussions. In separate comments to an economic session today, he said that boosting the value and relaxing controls on the yuan “will provide China the independence and flexibility to respond to future changes in growth and inflation.”
The yuan strengthened 0.03 percent against the dollar to 6.3050 today. Geithner highlighted the currency’s 13 percent gain over the last two years as a sign of progress by China.
Both Geithner and Chinese Vice Premier Wang Qishan called for deeper cooperation between the world’s two largest economies. Wang said the global economic situation remains “complicated and severe” and that the nations have “continuously deepened relationships” in trade and investment while dealing “hand-in-hand” with the financial crisis and European debt turmoil.
“We must continue to enhance coordination of macro-economic policies, work together to meet global challenges, and ensure economic growth and job creation in both our countries so as to contribute to a strong and sustainable recovery of the world economy,” Wang said.
Wang called on the U.S. to “take concrete steps to relax control on high-tech exports to China, expand infrastructure cooperation, increase financial market access and avoid politicizing economic issues.”
Companies that may benefit from increasing domestic demand in China include Yum! Brands Inc., the U.S.-based operator of Pizza Hut and KFC restaurants, and Tingyi (Cayman Islands) Holding Corp., China’s biggest maker of packaged food.
Officials making public remarks at the talks today, including Geithner, Wang, U.S. Secretary of State Hillary Clinton and Chinese President Hu Jintao, didn’t mention Chen’s case by name. The talks were closed to press following opening comments.
Amid the controversy over the fate of Chen, who was transferred to a local hospital yesterday after spending nearly a week under U.S. protection at the embassy, Clinton stripped down her reference to human rights at the opening of today’s talks to two sentences from the five in an advance copy of her remarks.
“The United States raises the importance of human rights and fundamental freedoms because we believe that all governments do have to answer to citizens’ aspirations for dignity and the rule of law and that no nation can or should deny those rights,” Clinton said, standing on stage next to senior Chinese officials, including Wang.
Later in the day, Gary Locke, the U.S. ambassador to China, told reporters that Chen made it “very, very clear from the very, very beginning” that he wanted to stay in China. The U.S. was intent on carrying out Chen’s needs, Locke told reporters.
The late Chinese leader Deng Xiaoping began rolling out free-market policies in 1978 that saw the nation become the world’s biggest exporter and the largest contributor to global growth.
The government’s steps toward letting the currency trade more freely include giving markets a bigger role in setting the exchange rate. The central bank on April 16 widened the yuan’s trading band against the dollar to 1 percent from a daily range of 0.5 percent in place since 2007. Economic growth slowed in the first quarter to 8.1 percent, the least in almost three years.
Geithner, in a speech last week outlining U.S. objectives in China, called on the country to loosen control of its financial system and to raise the ceiling on deposit interest rates.
The U.S. last month delayed a report on the exchange-rate policies of trading partners, including China, until after global meetings including this week’s sessions in Beijing.
The Treasury Department frequently delays the report. The last one, due Oct. 15, was released Dec. 27. The previous one, due April 15, 2011, was released May 27.
The Obama administration says China uses an undervalued currency to give its exporters an unfair advantage in overseas markets. In the December report, the Treasury called for China to adopt “greater exchange-rate flexibility” while declining to brand it a currency manipulator.