By Bloomberg News
Nov. 17 (Bloomberg) -- President Barack Obama called on Chinese counterpart Hu Jintao to make good on a commitment to allow the yuan to appreciate to help prevent trade imbalances that exacerbated the global economic crisis.
“I was pleased to note the Chinese commitment, made in past statements, to move toward a more market-oriented exchange rate over time,” Obama said during a joint appearance with Hu after a meeting in Beijing today. “Doing so based on economic fundamentals would make an essential contribution to the global rebalancing effort.”
America’s trade deficit with China widened to a 10-month high in September, raising concern that the combination of a recovering U.S. economy and a fixed yuan exchange rate against the dollar will worsen global imbalances. China’s dollar purchases to prevent appreciation swelled its foreign-exchange reserves to $2.3 trillion in the third quarter, more than twice as much as any other country.
“There is a continued fierce debate in China” on revaluation, said Michael Pettis, a Peking University finance professor and former head of emerging markets at Bear Stearns Cos. “It seems almost impossible that we’re not going to see more focus on trade and trade tensions.”
Twelve-month non-deliverable yuan forwards weakened 0.2 percent to 6.6215 per dollar as of 3:31 p.m. in Hong Kong and were little changed after Obama’s comments. The contracts signal traders are predicting a 3.1 percent advance in a year. In the spot market, the currency traded at 6.8266, compared with 6.8270 yesterday, according to the China Foreign Exchange Trade System.
Hu Silent on Yuan
Hu, in his remarks, made no mention of the yuan peg to a weakening dollar, which has forced central banks across Asia to sell their currencies to limit appreciation and maintain export competitiveness with China. The Indonesian rupiah gained 11 percent against the yuan in the past six months, and the Korean won rose 9.4 percent.
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said today in Beijing that a stronger yuan would be in the interests of China and the world.
The yuan has been pegged at about 6.83 to one U.S. dollar since July 2008. Maintaining the peg has also helped make China the biggest foreign holder of U.S. government debt, with $797.1 billion in August, up 10 percent from Jan. 1, Treasury data show.
Fighting Protectionism
Hu said China and the U.S. “need to oppose and reject protectionism in all its manifestations.” He told Asia-Pacific leaders in Singapore last week that China’s hadn’t foreseen the number of protectionist measures it would face this year including U.S. tariffs on Chinese-made steel and tires.
Obama said the two leaders “agreed on maintaining open markets and free flows of commerce.”
Controlling currency levels is a form of protectionism, Gempachiro Aihara, the incoming chair of the Asia-Pacific Economic Cooperation’s Business Advisory Council, said last week.
China and the U.S. agreed to address trade imbalances, including spurring more domestic demand in China, Obama said. The deepest U.S. recession in decades triggered a collapse in world trade as demand for Asian imports slumped. At the height of the crisis in February, Japan’s exports to the U.S. plunged a record 58 percent.
Obama’s speeches during his first trip to Asia as president have focused on the importance of increasing U.S. exports to achieve greater balance with a region that sells far more goods to the U.S. than it buys from American companies.
PBOC Signal
China’s central bank last week said foreign-exchange policy will take into account global capital flows and changes in major currencies, and scrapped language in a previous report to keep the yuan “basically stable.” The Chinese economy expanded by 8.9 percent in the third quarter from a year earlier.
Finance ministers gathered for the Asia Pacific Economic Cooperation forum called for “market-oriented exchange rates that reflect underlying economic fundamentals” in a statement last week. China and the U.S. are both APEC members.
China’s partnership has been critical to battling a global recession, Obama said today. The two leaders discussed the next steps to sustain a recovery, he said.
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