Does the US believe China is manipulating it’s currency or not?

Does the new Obama regime believe that China is manipulating it’s currency or not? The US seems to be retreating. This retreat is almost certainly politically motivated. I would be very surprised if the US government did not believe some manipulation had gone on either in the past or in the present.

It is hard to believe that the yuan is not currently undervalued although it is also true that there are bigger problems out there that need to be addressed. Obama is picking his battles well and this is one he does not want to get into yet.

The final paragraph is telling. It is all politics and little to do with economics.

US retreats from yuan manipulation claims [FT]

The Obama administration on Wednesday rowed back from claims that China is manipulating its currency, declining to cite Beijing in a closely watched report to Congress.

The move avoids a confrontation with Beijing at a moment when world leaders are trying to present a united front against the economic crisis. It implicitly recognises China’s efforts to help stabilise the world economy by avoiding competitive devaluation and boosting domestic demand.

“The Chinese have shown great commitment to playing a stabilising role in the system,” a senior Treasury official told reporters.

Analysts said the decision not to cite China nonetheless represented a retreat by President Barack Obama – who suggested China was a currency manipulator on the campaign trail – and by Treasury Secretary Tim Geithner, who reiterated the charge on January 22 during his confirmation process.

Mr Geithner then submitted a written statement to Congress that said: “President Obama – backed by the conclusions of a broad range of economists – believes that China is manipulating its currency.”

In a statement on Wednesday, Mr Geithner said the US still believed China’s yuan was undervalued, but cited four reasons for the decision not to name China as a currency manipulator in the report. China, Mr Geithner said, had “taken steps to enhance exchange rate flexibility.” It allowed its currency to appreciate slightly against the dollar as the crisis intensified and other emerging market currencies fell. It accumulated fewer reserves in the fourth quarter of 2008 and had “enacted a large fiscal stimulus” that would help rebalance demand.

Analysts said these trends were already in train on January 22. At that point, China had allowed its currency to appreciate relative to other emerging economies, had released the figures showing slower fourth-quarter reserve accumulation and had announced its $579bn stimulus.

US officials said developments since January 22 strengthened these trends, with China reaffirming its commitment to currency flexibility, holding to its currency stance, accumulating still fewer reserves in the first quarter of this year and reinforcing its stimulus measures.

Reaction in Congress – where the heat appears to have gone out of the issue – was muted. The Financial Services Forum, a financial sector lobby group, said the decision not to cite China in the report was “the prudent call.”

Several business groups endorsed the decision, though some manufacturing groups complained. Calman Cohen, president of the Emergency Committee for American Trade, a business lobby group, said: ”The Obama administration has time to work on this issue.”

Bill Reinsch, president of the National Foreign Trade Council, said ”the moderate Democrats in Congress came to a conclusion some time ago that it is not in anyone’s interest to rock that particular boat just at the moment.”

Originally published at the China Economics blog and reproduced here with the author’s permission.

6 Responses to "Does the US believe China is manipulating it’s currency or not?"

  1. Victor   April 20, 2009 at 11:36 pm

    Sure, there are bigger problems out there. China is manipulating currency, and it is also heavily subsidizing some production capacities (like in steel), thus exporting deflation. Adding the two together, it is a big problem. We SHOULD say something about it.

  2. NFrazier   April 21, 2009 at 10:41 am

    China needs to work on labor rights in much the same way the US needed to work on labor rights earlier in its history.The international community could help by pressuring Chinese employers against monopolistic and predatory practices – including outright failure to pay rural migrant factory workers for work done.Incidentally, the current drive to finance consumption via increased state bank lending does not bode well for Chinese consumer demand in the long term either.

    • Anonymous   April 29, 2009 at 5:00 am

      Have you seen a Chinese factory in the rural area? Have you been to any Chinese factory?? I can say that China factory has more labor rights than U.S. and perhaps just a little below par of German’s.I’ve been to many factories in many country including China, the people that’s telling you there are labor rights issues are wrong! People should remember the Eastern New Jersey, Lower Manhatten factories from years ago… those look bad compare to China today.

  3. NFrazier   April 21, 2009 at 7:30 pm

    Many of the dollar profits recieved for exports were either invested directly into the US financial markets or held in reserve by the PBoC (instead of converting more of them into yuan to pay their factory workers). Even if the yuan had not been kept artificially low via direct FX market intervention, the effective result was the same; dumping of low real wages onto China’s export markets, unsustainable current account imbalances, contribution to global deflation, etc.

  4. Anonymous   April 23, 2009 at 12:03 pm

    the only thing that has maintained its trajectory during this whole cycle is the trade imbalance. that’s the common denominator to the worlds’ problems. letting the yuan float is the first honest step towards a recovery.

  5. Anonymous   April 29, 2009 at 4:52 am

    This is a weird discussion, First of all, Forex by definition is a manipulated market, don’t tell me otherwise. Secondly, China which hasn’t been a part of any open counter in the past fifty years is of course a manipulted currency. People’s bank and announces RMB exchange rate every business day at 9:30AM Beijing Time.Why is it so hard to believe that the Yuan is actually over-valued? For a country’s major money supply is based on result of People lending to Government, and Government lending back to People… It’s hardly worth anything but the gross product that it generates to keep afloat their socialist system.Someone mentioned the dollar profits received from exports were invested into US instruments nailed it!!.. This is like United States is “laundering” the loot for China. US Government should be prosecuted for not investigating more closely the origination of these qustionable money.