The Chinese come bearing
checkbooks By Olivia Chung
HONG KONG - Chinese Vice Premier Wu Yi
will visit Washington on May 13 to attend the
second round of the semi-annual Sino-US Strategic
Economic dialogue with US Secretary of the
Treasury Henry Paulson. China will also send a
huge business delegation to ink deals worth some
US$12 billion to show its sincerity in narrowing
its trade surplus with the US.
But few
believe Wu will deliver the present at the top of
Washington's wish list - a stronger yuan - to the
US. Without a
strong yuan, however, experts
doubt that China's purchase of US goods would
significantly change the overall trade imbalance
between the two countries.
China's exports
soared 27.9% to $252.1 billion in the
January-March period, earning a surplus of $46.4
billion, $23.1 billion more than the same period
last year.
"We believe the significant
increase in the trade surplus, both in terms of
its levels and the year-on-year growth rate,
continues to put the yuan exchange rate under the
spotlight,'' investment firm Goldman Sachs
recently wrote in a note.
"Faster yuan
appreciation is a more efficient policy measure to
eventually reduce external imbalances and the need
for large-scale sterilization operations while
preserving domestic demand growth," it said.
But Beijing has resisted calls to let its
currency appreciate faster. The yuan has gained a
mere 7% since it was unhooked from a dollar peg in
July 2005 and allowed to float within managed
bands.
But some US politicians have fixed
on the yuan exchange rate as a key factor
underlying China's huge trade surplus. They argue
that Beijing is keeping the currency artificially
low, making imports from China cheaper than they
would otherwise be.
Vice Minister of
Commerce Gao Hucheng said the main reasons for
China's trade surplus are structural problems in
its industries and the global migration of
industry. Given that about 50% of China's imports
and exports are related to processing industries,
its trade surplus will remain for some time.
China's international payment imbalance has become
the government's top priority and triggered some
disputes, Gao said.
A Chinese delegation
signed about $16 billion in import deals with
their US counterparts on products ranging from
aircraft to soybeans and other goods during
President Hu Jintao's tour to the US in April
2006. This time Vice Premier Wu will buy about $12
billion worth of goods when China's strategic
economic dialogue with the US resumes in
Washington this month.
Wu, who co-chairs
the strategic economic dialogue with Paulson, will
be preceded on her trip by a commercial delegation
led by another senior commerce official, Ma
Xiuhong, who plans to visit the cities of Atlanta,
Chicago, San Francisco, and Washington, DC.
As well, about 30 large Chinese companies,
including the Bao Steel Group and China National
Arts and Crafts, will be invited to this year's
International Sourcing Fair in Shanghai and
encouraged to spend as much as $10 billion on
foreign imports. The procurement fair is scheduled
for September 25-27.
However, Ha Jiming,
chief economist of China International Capital
Corp, mainland China's biggest investment bank,
said the purchases could hardly have any
significant impact on the overall US-China trade
imbalance, and the situation will not change until
2015, when China becomes an aging society and has
to direct more resources to social costs.
To boost imports, the Ministry of Commerce
recently lifted embargoes on more than 1,600
categories that were previously banned from
entering the country. At the same time, Beijing
has moved to discourage exports by cutting
export-tax rebates from 8% to 5% on 76 products
and has abolished rebates on 83 products since the
middle of April.
While experts including
many at home say speeding up yuan revaluation is
the most effective way for a balanced trade, the
Chinese government is expected to stand firm on
its gradualist approach. Chen Xingdong, deputy
managing director and chief economist of BNP
Paribas Peregrine Securities, said in Beijing that
given many uncertainties, yuan appreciation might
not be an efficient measure to reduce external
imbalances.
"First, one has to ask by what
percentage the yuan has to increase to reduce the
competitiveness of Chinese exports. Second, if the
yuan were left to appreciate faster and that did
not have any significant impact on the US-China
trade imbalance, the value of yuan would have been
under the control of other countries who would
never be satisfied with the rise," Chen said.
Chen reminded of the painful lessons
learned by Taiwan in the 1980s and early 1990s
when it was called to raise the value of its
currency. Taiwan lost control over its money
supply in 1987 and eventually succumbed to market
pressure by letting the exchange rate float. Since
then, its economy has not recovered its
double-digit growth, Chen said.
"With the
17th Communist Party Congress in the autumn, at
which a leadership reshuffle is likely, the
central government leadership needs to be very
careful in with the steps it takes to cool down
the economy," he said.
"At the same time,
in order to reduce the competitiveness of Chinese
exports and to reduce the trade surplus, Chinese
government has other measures to achieve its aims.
For example, it could scrap export-tax rebates on
resource-intensive and highly polluting products
and ban processing trade of some categories in a
bid to slow down export growth," he said.
"So why don't we have a look at the
effectiveness of these measures before resorting
to the yuan appreciation?" he asked.
Olivia Chung is a senior Asia
Times Online reporter.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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