China’s President Leaves Door Open For Yuan Increase

Despite pressure from President Obama, China’s President Hu Jintao continued to remain ambiguous about whether or not the country will revalue its currency. According to reports, China is …

Despite pressure from President Obama, China’s President Hu Jintao continued to remain ambiguous about whether or not the country will revalue its currency. According to reports, China is loosening requirements of its “indigenous innovation” program and will allow foreign companies to bid for government technology purchases, after a flood of criticism from several countries. See the following article from Money Morning for more on this.

President Barack Obama pushed against potentially unfair trade policies on two fronts in Monday’s meeting with Chinese President Hu Jintao and appeared to win a small victory when Hu didn’t completely rule out letting the yuan appreciate.

After Obama urged China to move toward a “more market-oriented exchange rate,” Hu told him that his country wouldn’t yield to “external pressure” in deciding when to adjust the yuan, Bloomberg News reported.

Obama also expressed “his concern” about some “market- access barriers in China,” Jeff Bader, senior director for Asia at the National Security Council, told reporters after the meeting, which was held in conjunction with a gathering of world leaders in Washington to discuss nuclear security.

China’s official Xinhua news agency said Hu maintained that any move to revalue the yuan would only be “based on its own economic and social-development needs.”

Analysts say that because Hu’s comments didn’t specifically rule out action on ending the dollar-yuan peg, he has left himself room to maneuver.

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“Hu could have said that China feels its exchange rate is now at the right level and will not change it; he did not say that,” Kenneth Lieberthal, a China scholar at the Brookings Institution in Washington told Bloomberg.

By saying China would adjust exchange rates based on its own needs, Hu left the matter “wide open,” Lieberthal said. “Hu’s left himself a lot of wiggle room.”

China has kept its currency, the yuan, pegged around 6.83 per dollar since July 2008 in order to boost exports during the deepest contraction in trade since World War II. Despite the currency freeze, exports still tumbled for 13 straight months, shrinking the nation’s trade surplus by 34% last year to $196 billion.

Obama has been under pressure from U.S. lawmakers who say China’s policy gives China an unfair advantage by reducing comparative manufacturing costs and boosts its export market.

Hu’s comments suggest the yuan will be revalued in “coming months,” because Treasury Secretary Timothy Geithner can’t indefinitely delay a report originally due on April 15 that may label China a currency “manipulator,” Huang Yiping, a professor at the China Center for Economic Research at Peking University, told Bloomberg.

“The exact time I don’t know, but I think it won’t take a very long time given that there are so many things coming up,” said Huang, a former chief Asia economist for Citigroup Inc. (NYSE: C).

“Indigenous Innovation” Sparks Market Concerns

Obama’s “concern” about market barriers was no doubt a reference to China’s November announcement of an “indigenous innovation” program that would favor technology developed in China when buying computers and other goods.

The Chinese government says the policy is meant to encourage domestic research but foreign companies have expressed concerns they will be shut out of government purchases. China’s government is the world’s biggest customer for many types of technology, spending billions of dollars each year.

The rules required companies to obtain patents and register trademarks in China before other countries. Many global companies are reluctant to apply for patents in China, because its system has struggled to protect intellectual property rights and local rivals could steal technology.

After a firestorm of criticism from the United States, the European Union and foreign chambers of commerce, the government this week issued a draft of new rules that loosen the requirements, The Associated Press reported.

The proposed rules say companies may apply to qualify for government procurement as long as they have legal rights over the products’ intellectual property and their products adhere to China’s laws and its national industrial and technological policies.

“The national indigenous innovation recognition treats equally all companies legally established in China,” an unidentified official from the Ministry of Science and Technology said in a report on the Web site of People’s Daily, the Communist Party newspaper.

This article has been republished from Money Morning. You can also view this article at
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