Obama urges China’s leader on currency

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President Barack Obama on Monday pushed President Hu Jintao of China to allow the renminbi to appreciate and to back sanctions on Iran.

After an hour-and-a-half-long meeting on the sidelines of the nuclear security summit Mr Obama is hosting, the two sides emphasised their increasing co-operation after a period when Washington and Beijing appeared to be at loggerheads.

The meeting had been in doubt after disputes this year over Taiwan and the Dalai Lama.

“The fact that Hu Jintao decided to come is in itself quite a success for the administration,” said Michael Green at the Center for Strategic and International Studies in Washington.

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US officials say China has also become more responsive on two highly charged political issues for Mr Obama – Iran and the alleged undervaluation of the renminbi, which many US officials say leaves US producers unable to compete.

Having decided to begin discussions on United Nations sanctions against Iran, China has signalled it may be preparing for a currency appreciation.

“The president reaffirmed his view that it is important for a sustained and balanced global economic recovery that China move toward a more market-oriented exchange rate,” said Jeff Bader, Mr Obama’s top White House adviser on Asia. He added that Mr Obama also “noted his concern” over market access barriers in China.

A Chinese government spokesman described the meeting as “positive and constructive”.

During the meeting, Mr Hu insisted that China would “firmly stick to the path of reforming its currency exchange rate formation mechanism based on its own economic and social development needs,” according to Chinese state media.

“Renminbi appreciation would neither balance Sino-US trade nor solve the unemployment problem in the US,” he told Mr Obama.

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Mr Hu said China was not seeking a surplus in its trade with the US and he repeated a long-standing request for looser controls on the export to China of high-technology products, which the US restricts if they can be used to develop military hardware.

Chinese state media quoted Mr Obama saying he respected China’s sovereignty concerning the renminbi exchange rate issue and he hoped both sides could find a solution through dialogue and cooperation.

China was provided with fresh evidence in the debate over the renminbi’s valuation by Monday’s data on foreign exchange reserves, which rose by $47.9bn to $2,447bn by the end of the first quarter, compared with a $126.5bn rise in the fourth quarter of 2009, the Chinese central bank said on Monday.

Analysts said the moderation in the reserves growth was mostly due to a 77 per cent drop in China’s trade surplus in the first quarter from the same period a year earlier to $14.5bn.

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China recorded a trade deficit of $7.2bn in March, its first in six years, which the country’s Ministry of Commerce said proved the exchange rate was not the main factor determining trade flows.

“This will certainly help Beijing’s argument but, regardless of the monthly deficit and slowing reserves, the US will keep up the pressure because a lot of the debate is motivated by political considerations on Capitol Hill,” said Dong Tao, chief China economist at Credit Suisse.

Washington emphasised the importance of the two leaders’ discussion on Iran.

“The two presidents agreed that the two delegations should work on a [UN] sanctions resolution in New York, and that’s what we’re doing,” said Mr Bader.

Monday’s summit also saw a declaration by Ukraine that it would rid itself of all highly enriched uranium on its territory by 2012. The summit, which continues on Tuesday, is intended to put all such dangerous nuclear materials out of the reach of terrorists by 2013.