China, U.S. shout to be heard in dialogue of the deaf
China has just ushered in the Year of the Ox, which is typically associated in the lunar calendar with calm, fortitude and success through toil.
That’s just as well, for China and the United States will need great calm and fortitude if they are to repair through hard work the damage done by new U.S. Treasury Secretary Timothy Geithner’s accusation that Beijing manipulates its currency.
Now, it is patently true that the yuan’s exchange rate is controlled by the People’s Bank of China. How else did the central bank accumulate nearly $2 trillion in reserves? Was it by accident that the yuan rose 20 percent against the dollar over three years only to become rooted to the spot since last July?
Of course not. China, with extensive capital controls, actively “manages” its exchange rate.
But “manipulation” is a dirty word in currency diplomacy. If the Treasury were to determine in its next report to Congress in the spring that China manipulates the yuan, it would be obliged under U.S. law to launch negotiations with Beijing on the issue.
Given China’s abhorrence of outsiders’ poking their nose into its business, that would be sure to enrage China.
By all accounts from Washington, the inclusion of the word “manipulation” in Geithner’s written testimony to the Senate Finance Committee was due to sloppy staff work and poor inter-agency coordination within a young administration good credit score.
President Barack Obama acted quickly, first through his spokesman and later through a call to President Hu Jintao, to smooth ruffled feathers.
The Chinese-language Economic Observer said in a front-page commentary that only “extreme irrationality” would prevent China and the United States from continuing to work together.
“It’s not that the United States needs China or that China needs the United States, but that they both need each other.”
INAPPROPRIATE, UNSUSTAINABLE
Still, the worry for a world in recession is that the Geithner flap shows the United States and China are still talking past each other, rather than to each other, on how to iron out the imbalances at the root of the global economic meltdown.
Premier Wen Jiabao told the Financial Times in an interview published late on Sunday that it was “ridiculous” to hold China responsible for the crisis.
Speaking a few days earlier at the World Economic Forum in Davos, Wen pinned the blame instead squarely on Washington.
“Inappropriate macroeconomic policies in some economies and their unsustainable model of development, characterized by prolonged low savings and high consumption,” was first in a list of reasons Wen cited for the crisis.
Filed under: business by Guru