China hits back over exchange rate level

飞雪寒冰

Wen Jiabao, Chinese premier, has warned other countries that pressing China on currency policy amounted to protectionism and insisted that the renminbi was not undervalued.

Mr Wen said China would continue to reform its currency system. But he pushed back strongly against international pressure on the level of the exchange rate, which is becoming a flashpoint in relations with the US.

Speaking at the end of the National People’s Congress, he added that China was still “very concerned” about the safety of its US dollar investments.

“The Chinese currency is not undervalued,” Mr Wen said at the closing of the annual meeting of the Chinese legislature. “We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies.”

飞雪寒冰

Mr Wen said he understood that countries wanted to increase exports but said they should not resort to what he described as protectionism.

“What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.

China’s currency has been in effect pegged to the US dollar since mid-2008, which Beijing argues brought stability to the international economy during the financial crisis.

飞雪寒冰

However, international pressure on China to strengthen the renminbi is rising, especially from the US, where the Treasury department must decide by mid-April whether to label China a “currency manipulator”.

Although there is little direct consequence from accusing another country of manipulating its currency, analysts say such a move could lead to the US imposing trade sanctions.

Mr Wen pointed out that about half of China’s exports were processing trade – where imported components are assembled at factories in China – and 60 per cent were made by foreign companies or joint ventures with a foreign partner.

“If you restrict trade with China, you are hurting your own countries’ firms,” he said.

飞雪寒冰

Mr Wen caused a stir last year when he expressed concern for the safety of China’s vast holdings of US government debt.

“We are very concerned about the lack of stability in the US dollar. I was worried last year... I am still worried this year.”

Mr Wen said he hoped Washington would take “concrete steps to reassure international investors” since the government guarantees US sovereign debt.

Mr Wen pinned the blame for the friction with the US on Washington. He said the tensions were due to Mr Obama’s decisions to sell arms to Taiwan and to meet the Dalai Lama.