Moving Doha: US View

http://blogs.reuters.com/great-debate/2011/03/11/moving-doha-forward-the-u-s-view/

Moving Doha forward: The U.S. view
MAR 11, 2011 15:22 EST

DOHA | TRADE | U.S. PRESIDENT OBAMA | WTO
By Ron Kirk, U.S. Trade Representative Ron Kirk. The opinions expressed are his own.

Right now in Geneva, Switzerland, a test is underway. It is a test of the willingness of World Trade Organization (WTO) members to move the decade-long Doha Development Round negotiations into the “end game” – as President Obama and other G20 Leaders have directed negotiators to do this year. The window of opportunity for the talks to avoid decline into futility is a narrow one. The United States will leave no stone unturned in its quest for an ambitious and balanced outcome. But key negotiating partners must share this motivation.

The world has changed since the Doha negotiations began in 2001. To succeed today, WTO trade talks must address the world as it is and as it will be in the coming decades. The remarkable growth of emerging economies like China, India, and Brazil must be reflected in a final Doha outcome.

The United States has been frank about the importance of increased access to these emerging markets for U.S. exporters. But such access is also vital for the poorest countries that have been a particular focus of the Doha negotiations –especially since these countries already have largely open access to major developed economies like the United States. In a negotiation in which the United States is being asked to significantly cut 100 percent of import duties on both industrial and agricultural goods, we are asking emerging economies to accept responsibility commensurate with their expanded roles in the global economy.

No country is more important to a successful Doha outcome than China. By any estimate, China will be an enormous winner from a Doha agreement. China’s exports have boomed since joining the WTO, but it continues to maintain high tariffs, many of which still would not be cut under the current parameters of the Doha Round.

Despite its position as an economic and trade powerhouse, today’s WTO rules allow China to have open access to major markets without giving appropriately reciprocal access. In Doha, we are asking China to commit to a significant opening of its market in industrial sectors – like chemicals, electronics, and industrial machinery – where China’s global competitiveness is unquestioned. That’s reasonable.

Similarly, Brazil is one of the world’s ten largest economies and a growing export power. Yet Brazil’s market remains restricted in the technology sector, among others. Since 1996, 73 countries comprising over 97 percent of the global trade in information technology products have opened their markets to competition in this sector by signing the WTO Information Technology Agreement (ITA). Signatories include developing countries such as Egypt, El Salvador, Costa Rica, and Vietnam. In Doha, one of our “asks” of Brazil is to join the ITA. That’s reasonable.

Under the Doha package currently on the table, India would make cuts on only 3 percent of the tariffs it applies on industrial goods – a result that can hardly make sense in a 21st century economy in which India plays a major role. As with China and Brazil, we look to India to offer significant liberalization in sectors – such as pharmaceuticals and industrial machinery – where India is doing extremely well as an exporter. That’s reasonable.

These three big players are also major competitors in global trade in services, where we also have considerable work to do to create new market access. China’s telecommunication operators are now the world’s largest; Brazil is the world’s 7th largest Internet user; and India is a world leader in information and communications technology (ICT) services. And yet the current services package would yield little progress in opening markets in sectors that drive global economic growth and development, from communications to financial services, environmental to supply chain services. Any final Doha package simply must do better.

We also have critical unfinished business on agriculture. While the current negotiating texts are abundantly clear on what is expected of the United States, it is still unclear what our farmers will see in return, especially from the key emerging markets.

The United States is encouraged that a new sense of urgency appears to be present in Geneva. But in order to put Doha firmly and finally on the path of success, that urgency must now translate – very quickly – into real negotiations. The United States will shoulder its share of the burden. We will expect and insist, however, that other key players help to lift the load. That’s reasonable.

Conditions were ripe for a dispute with China

Conditions were ripe for an escalating dispute with China

THE ASAHI SHIMBUN

2010/09/29

Prime Minister Naoto Kan answers questions after his speech at the U.N. General Assembly on Friday, but he failed in his efforts to speak with Chinese Premier Wen Jiabao in New York. (THE ASAHI SHIMBUN)

Prime Minister Naoto Kan was already past his limit of patience. Painted into a corner by an increasingly ugly diplomatic row, Kan was informed that a decision had been made to release a Chinese trawler captain arrested after an incident near the disputed Senkaku Islands before his detention deadline of Sept. 29.

The close aides told Kan, who was preparing to depart for New York for the United Nations General Assembly session, that an announcement of the skipper's release should not only defuse the conflict but would be made soon after Kan returned to Japan on Sept. 25.

The prime minister was not appeased. Raising his voice, Kan growled to the aides, "Can't it be decided sooner?"

Kan wanted the announcement pushed up, apparently to open the possibility of meeting Chinese Premier Wen Jiabao in New York, according to sources.

By then, it was too late.

Japan-China relations had already plunged to new depths, exacerbated by confusion and mixed priorities in the Japanese government, as well as misread signals on both the Japanese and Chinese sides due to a lack of communication.

"It was a complete lack of prior sounding out of views," a source working at a Chinese think tank said.

Kan returned to Japan without meeting Wen. He now faces criticism over what critics call the government's bungling of the incident and suspicions that Kan is trying to put the decision to release the skipper solely on the shoulders of the prosecutors.

The arrest of the skipper, Zhan Qixiong, was ultimately the decision of Foreign Minister Seiji Maehara, who was minister of land, infrastructure, transport and tourism at the time and in charge of the coast guard.

Kan initially accepted Maehara's advice to arrest Zhan and handle the incident in an orderly fashion under domestic law. But as the situation unraveled, Kan shifted course. Yet, nothing changed on the Japanese side.

Immediately after the trawler collided with Japan Coast Guard vessels on Sept. 7, Maehara called Coast Guard Commandant Hisayasu Suzuki and told him, "The captain of the Chinese fishing boat must be arrested."

Maehara also called Chief Cabinet Secretary Yoshito Sengoku and told him, "It is better to persist with a resolute attitude against China."

Then Foreign Minister Katsuya Okada was changing trains in Germany when he hastily accepted Maehara's argument to arrest Zhan.

On the evening of Sept. 7, Sengoku heard reports from coast guard and Foreign Ministry officials about the collisions. Sengoku was handling the matter on behalf of Kan, who was in the midst of the DPJ presidential election.

Coast guard officials explained that the trawler ignored repeated instructions to stop and rammed into the coast guard vessels after making a sudden turn.

Participants at the meeting reached the consensus that an arrest was unavoidable due to the egregious nature of the incident.

Sources said Sengoku muttered, "This could postpone a meeting between the leaders of Japan and China."

Given China's staunch stand on any territory it considers its own, Sengoku instructed high-ranking Foreign Ministry officials at the meeting to "think about what type of friction might arise."

At first, China responded calmly.

In a statement released Sept. 7, Chinese Foreign Ministry spokeswoman Jiang Yu said, "China is paying attention to the development of the situation and reserves the right to take further action."

The following day's People's Daily carried no report about the incident nor the request made by China's Foreign Ministry.

But the Chinese government later strengthened its opposition by, for example, calling Ambassador Uichiro Niwa for meetings on five separate occasions.

During one of those meetings on Sept. 12, Dai Bingguo, China's state councillor in charge of foreign affairs, told Niwa, "We ask for a wise political decision without a mistaken judgment of the circumstances."

Dai made no mention of a protest of Zhan's arrest.

Reflecting back on that time, a Chinese government source said, "By sticking to a calm response, China was trying to encourage Japan to release the captain on its own accord."

The general view in Beijing was that Japan would sufficiently understand China's will through the unusual number of meetings asked of Niwa and release the captain out of consideration for bilateral relations, sources said.

But Maehara refused to back down.

He told close aides: "The prime minister's office was hesitant so I had to make the decision to arrest the captain. There was no mistake in the handling of the matter."

Domestic political matters in Japan complicated the situation, and the pending issue with China took a back seat.

On Sept. 17, Kan reshuffled his Cabinet after winning a full term as DPJ president.

Okada accepted the post of DPJ secretary-general on condition that Maehara take over as foreign minister. Kan accepted the condition, and the move became one of the most prominent personnel shifts.

"At that time, we were in the midst of a Cabinet reshuffle, and Okada did not handle any matters after being appointed secretary-general, saying, 'That is something for the next foreign minister,'" a high-ranking Foreign Ministry official said. "Maehara was also busy preparing for the U.N. General Assembly that was upcoming in a few days."

Even after the Cabinet reshuffle, Kan and his aides seemed most concerned about appointments of senior vice ministers and parliamentary secretaries as a way of accommodating Ichiro Ozawa, the political heavyweight Kan defeated in the DPJ presidential election.

When those appointments were concluded on Sept. 21, officials of the Kan government were confronted with the reality that Japan-China relations had taken a drastic turn for the worse.

While the political attention was focused on appointments in Tokyo, a court in Okinawa Prefecture agreed to the extension of Zhan's detention past the first deadline of Sept. 19.

Beijing suddenly hardened its stance. Chinese officials, who had been expecting Zhan's release, were now convinced the captain's case would be processed under Japanese law, strengthening Japan's claims to the islands called Diaoyutai in Chinese, and indicted on Sept. 29, sources said.

Wen, who arrived in New York before Kan, said Sept. 21, "We will be forced to take the necessary retaliatory measures."

Chinese sources said the highest leadership levels of the Communist Party had decided to take a hard stance against Japan, and such decisions must be followed without question.

The leadership corps of the Communist Party also issued instructions to various government departments and officials, as well as government-affiliated think tanks, to prepare economic sanctions against Japan.

One of the first measures came on the evening of Sept. 19, when China canceled bilateral negotiations over airline flights. That was followed by a request to Chinese travel agencies to refrain from accepting applications for tours to Japan. A Beijing company decided to cancel group trips involving about 10,000 tourists to Japan.

All of those projects had been promoted by Maehara when he was tourism minister.

Kan understood the gravity of the situation, and told an acquaintance just before he left for the United States, "There appears to have been a problem in the initial stages."

Government sources said the old "irritable Kan" even shouted at his aides before his departure.

With both Kan and Maehara attending the U.N. session, it was up to Sengoku to defuse the situation.

He informed the prosecutors that the Foreign Ministry was concerned about the escalating tensions with China. Sengoku likely wanted to clear the atmosphere before mid-November, when the Asia-Pacific Economic Cooperation forum is scheduled to be held in Yokohama. Chinese President Hu Jintao is expected to attend the meeting.

At the same time, Sengoku also revealed to an acquaintance the bind that Japan was facing, "There is no one in the DPJ with close ties to China."

That may have been one reason Kan was unable to meet with Wen in New York even after the captain was released.

The source at the Chinese think tank said, "It would have been impossible (for Wen) to shake hands with the Japanese prime minister immediately after the leadership made such a strong criticism."

In the end, the Naha District Public Prosecutors Office announced Friday that Zhan would be released, a day after reports surfaced that China had effectively banned exports of rare earth metals to Japan in an attempt to cripple Japan's high-tech industries.

Kan was awakened and told about the decision Friday morning in New York. He did not seem very surprised, sources said.

At a combined meeting of the foreign and judicial affairs divisions of the opposition Liberal Democratic Party on Monday, high-ranking Foreign Ministry officials said: "After discussing the matter with the prime minister's office, we dispatched a Foreign Ministry official to the Naha District Public Prosecutors Office. On Sept. 23, the Foreign Ministry section chief in charge of the matter went to the Naha District Public Prosecutors Office."

On Friday, when Toru Suzuki, deputy public prosecutor at the Naha District Public Prosecutors Office, announced the release of Zhan, he explained that the decision had been made after "considering the effects on the people of Japan and the future of Japan-China relations."

But the relationship has shown no signs of improvement, with the Chinese government continuing its tough stand.

After Zhan's release, China demanded an apology and compensation from Japan.

Japan rejected those demands.

"The ball is in China's court," Sengoku said Monday, adding that Japan would ask China to pay for the repairs to the damaged coast guard vessels.

Sengoku met with DPJ lawmakers Monday at the Prime Minister's Official Residence and reflected on the incident. He called Wen's remark in New York about taking retaliatory measures "an unexpected development."

Chinese government sources also expressed surprise, saying they never expected the captain to be suddenly released.

Kan, meanwhile, has waffled over the past few days.

He initially said he would not attend the Asia-Europe Meeting (ASEM) set for early October, saying he places priority on the extraordinary Diet session that begins Friday.

However, on Monday, Kan turned around and said he would attend the ASEM meeting.

Wen is also expected to attend.

A high-ranking government official explained Kan's about-face: "He might have considered not wanting only China to talk about the incident. He probably wants to personally explain Japan's thinking."

Trade blows

Global economy: Trading blows

By Alan Beattie

Published: July 5 2010 20:29 | Last updated: July 5 2010 20:29

port of Oakland California

At last, the mountain moved. After months of subtle diplomacy from the US Treasury and not so subtle threats from Congress, China two weeks ago grudgingly gave its currency, the renminbi, a little more freedom to rise.

The exchange rate issue dominates a relationship that will shape the future of the world economy – the confrontation between the US, the economic superpower of the 20th century, and China, the rising industrial hegemon of the 21st. Washington, with occasional support from Europe and selected emerging markets, says Chinese currency policy unbalances the world economy and disadvantages foreign companies.

But even if the currency rises significantly, as the White House demands, the US still faces myriad challenges managing its trade and investment relationship with Beijing.

With discontent rising across American business, fuelled by incidents such as the Google China censorship spat, Washington is recognising to its intense frustration that it lacks the instruments to conduct international trade policy in a modern economy.

“China is distorting global trade and investment patterns with a web of state-sponsored industrial policies,” says Jeremie Waterman of the US Chamber of Commerce. “The tools the US government has are inadequate to cope with this interlocking web.”

The old-fashioned architecture of US trade policy largely reflects the metal-bashing economy of the past. It is predicated – as is the focus on the exchange rate – on its manufacturers competing head-on with Chinese companies, particularly in the American market.

The US has a panoply of “trade defence” instruments – antidumping, countervailing duty and safeguard measures – that allow it to block imports it deems unfairly priced, state-subsidised or flooding in too rapidly. One such tool was used in September last year to restrict Chinese tyre imports, provoking a storm of protest from free-traders.

But the goods to which the US applies such measures are mainly basic, low-margin industrial components in which American competitiveness is being eroded against many countries. The list hit with trade defence protection in recent months does not read like a tour of America’s economic future: drill pipe, phosphate salts, coated paper.

Francisco Sánchez, undersecretary for international trade at the Commerce department, notes such products cover less than 3 per cent of US trade with China. Yet because the industries are long established and often have powerful labour unions, they exert disproportionate control over trade policy. When China joined the World Trade Organisation in 2001, the negotiators’ focus was on goods such as these, and particularly the eternally controversial area of garments and textiles.

Business and Beijing

Foreign companies complain that...

●Counterfeiting and piracy of products from pharmaceuticals to DVDs to mobile phones remains rife, with inadequate punishments

●Laws protecting intellectual property of foreign companies are hard to enforce, with inexperienced and sometimes biased courts

●Unique technical standards such as Wapi, China’s version of Wi-Fi, have been adopted to favour domestic companies

●Domestic bidders are favoured in contracts in areas such as
wind-power technology

“When China joined the WTO, the US and Europe put huge amounts of effort into keeping Chinese clothes out through negotiating multiple layers of trade defences,” says Gary Horlick, a leading Washington trade lawyer. Now these measures “are becoming not just an irrelevance but a distraction”, he says. Time and political capital are expended pursuing trade policies irrelevant to most American companies.

As China’s domestic market has rapidly grown, US and European companies have become increasingly interested in locating production there – and particularly in selling services such as telecommunications, information technology and media. But many are struggling. Beijing, under the rubric of its “indigenous innovation” policy, is instituting what foreign companies say is a complex system of skewed government procurement, unfair and arbitrary licensing policies and forced technology transfer that violates intellectual property rights (IPR).

Mr Waterman traces the policy back to 2002, when China had finally joined the WTO. “Once the negotiations had ended, those elements who preferred a stronger role for government were freed up,” he says. “The Hu-Wen government from 2003 inherited an economy where they saw few [Chinese] companies in high-wage sectors and in IPR-dependent industries, and set about trying to change it.” The gigantic $568bn fiscal stimulus Beijing announced in November 2008 gave them more ammunition to direct industrial development with government procurement.

Beijing says it is merely trying to do what other countries have done – modernise its economy, ascend the value chain and ease away from dependence on foreign companies for investment and technology.

But US companies say “indigenous innovation” goes way beyond familiar problems with software and movie piracy, and amounts to a full-blown system of government manipulation of large swaths of the economy.

Procurement is used to favour Chinese companies. Idiosyncratic technical standards such as a home­grown wireless technology – “Wapi” – are given a clear run by denying licensing to more familiar international standards. Information, communication and technology companies complain about restrictions, such as requirements for products to be certified and tested in government laboratories, and for businesses to disclose source code.

Alarm about this is rising to the point where business representatives are increasingly prepared to criticise policy publicly. “We are feeling less and less welcome in China, which is why you are seeing more people speaking out and reconsidering their futures in China,” says John Neuffer of the Information Technology Industry Council.

Last week Jeffrey Immelt, chief executive of GE, expressed his growing concern about Beijing, telling an audience of Italian executives that “I am not sure that in the end they want any of us to win, or any of us to be successful”.

The menu of options available to cope with such problems is limited. The most obvious is litigation at the WTO. Here the US has had some, but not spectacular, success. In 2004, in its first complaint against China, it forced Beijing to remove preferential treatment for local semiconductor producers; in 2008, it won a case against Chinese rules on car parts. More recently it was successful in two landmark cases – one on enforcement of IPR and one on restrictions on the domestic distribution of films and books. It is currently considering a case over restrictions on foreign credit cards.

But this strategy costs time and effort, and is not a cure-all. After the two or three years it can take to bring and win a case and an appeal, the remedy often comes too late. In the car-parts case, US business experts say, the delay gave Chinese industry more time to develop and American industry to weaken, foiling the goal of allowing US car-parts companies export significant quantities to China. Mr Neuffer notes that dispute settlement is even slower for high-tech industries, where product lifecycles can be less than a year.

Scott Lincicome of White & Case, a Washington law firm, says WTO litigation is one of the more attractive options, especially as Beijing has started to accept it as a normal part of trade relations, not a declaration of war. But it has drawbacks: “On issues like IPR there is very limited case law, and governments are very reluctant to bring cases unless they are fairly certain they will win them.”

The fact that much of what China is doing falls outside normal WTO agreements presents a wider problem. The prospect of changing this in the medium term, with the Doha round of global trade talks in limbo, looks bleak. Indeed, Michael Punke, US ambassador to the WTO, complains that Chinese negotiators are not even engaging seriously in talks.

There are no strong rules about promoting competition in markets in WTO agreements. There is an agreement whereby governments commit to put public purchases of goods and services out to international tender but China has never signed.

“Government procurement in China is actually much more important to the American and European economies and companies [than issues such as textiles], but much less effort was put into getting China to join,” Mr Horlick says. China says it will make an offer to sign up this month but appears to have ruled out including regional and local government and state-owned enterprises, thus punching huge holes in any new commitment.

Debbie Stabenow, Democratic senator from Michigan, has proposed a bill that would cut China off from US government procurement if it does not open its own market. But few investors seem to think that would make a tremendous difference. Rules such as the “Buy American” provision already restrict China from bidding for some government contracts, against which Beijing has in turn complained.

In theory, companies could try using bilateral investment treaties – which prevent host governments maltreating foreign investors – and argue that Beijing’s actions are in effect expropriating their investment. But the US does not have a tradition of signing such treaties, and an investment pact Washington was negotiating with Beijing has been put on hold pending a US review.

This leaves companies and the government having to rely on suasion through regular contacts, including the annual official strategic and economic dialogue.

Private US business associations say that in cases involving product standards, Beijing will often announce a restrictive policy and then retreat after an outcry from foreign business groups.

Tim Stratford, a former assistant US trade representative, now at the law firm Covington & Burling in Beijing, says that China is susceptible to some political arguments. “You can make the case that most countries behave in a particular way and China is placing itself outside those norms,” he says. “Or you can argue that China will lose support from other countries if it acts this way.”

But at the moment, he says, a mutual lack of trust hampers the resolution of a wide range of issues. A fundamental mismatch of expectations, it appears, is the real problem currently bedevilling relations.

What China sees as legitimate tools to promote its economic development are regarded in Washington as abuses of state and market power, and it is becoming painfully obvious that the US lacks the power to correct them.

One thing is clear: the temporary resolution of the currency problem has not ended the friction in trade and economic relations between the US and China.

Revaluing the renminbi

Do not expect a rapid rise, says Beijing

If the first goal of China’s decision last month to abandon its currency peg to the US dollar was temporarily to blunt international criticism, then it looks like mission accomplished, writes Geoff Dyer.

While the Canadian summit of the Group of 20 leading nations in late June looked, in the build-up, as if it might turn into a bash-China session, Beijing’s announcement the week before that it was changing policy took the issue off the table in Toronto. The administration of Barack Obama, meanwhile, notched up the change of heart as a victory for behind-the-scenes diplomacy. The risk that the currency dispute would descend into a trade war has, for now, disappeared.

Yet how the policy will evolve is much less clear. Two weeks after Beijing ended the dollar peg and adopted a more “flexible” exchange rate policy, the renminbi has appreciated only 0.3 per cent against the dollar. So far the economic impact of the policy shift has been limited.

Indeed, during the past fortnight, Chinese officials have gone out of their way to stress that any changes in the exchange rate will be anything but dramatic. Speaking at a financial forum in Shanghai 10 days ago, Xie Duo, director of the financial markets department at the People’s Bank of China, ruled out any significant increase in the value of the currency. “Given the decline in our current account surplus, there is no foundation for a sharp rise in the renminbi,” he said.

“China’s currency reform will be gradual,” said Jiang Yaoping, a deputy minister at the commerce ministry, which had run a campaign to prevent the lifting of the peg. “Any accusations that China is manipulating its currency are groundless.”

Li Daokui, an adviser to the central bank, told the same forum in Shanghai that this “is different from the reform in 2005”, after which the renminbi appreciated gradually against the dollar; today, there could be “two-way” movement.

There is an element of politics to some of this public posturing. Beijing is desperate to avoid the impression that it is giving into foreign pressure, which would be the conclusion at home if the renminbi appreciated strongly straight away. The important thing, some observers say, is the trend in the exchange rate, rather than the short-term rate of change.

But slow appreciation against the dollar could revive criticism in the US that China is gaming the trading system, especially as midterm elections approach. The key, says Ben Simpfendorfer at RBS in Hong Kong, is the crisis in Europe, China’s biggest export market. If the euro stabilises, China could yet allow the renminbi to drift higher against the dollar. But if the euro weakens further, he says, the political tensions with the US could easily return.

Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

China and Germany unite to impose global deflation

By Martin Wolf

Published: March 16 2010 22:59 | Last updated: March 16 2010 22:59

“Chermany” spoke last week and the world listened. Was what it said coherent? No. Was what it said self-righteous? Very much so. Was what it said dangerous? Yes. Will wiser views still prevail? I doubt it.

You may have heard of Chimerica – a neologism invented by Niall Ferguson, the Harvard historian, and Moritz Schularick of the Free University of Berlin, to describe a supposed fusion between the Chinese and American economies. You may also have heard of Chindia, invented by Jairam Ramesh, an Indian politician, to describe the composite new Asian giant. Let me introduce you to Chermany, a composite of the world’s biggest net exporters: China, with a forecast current account surplus of $291bn this year and Germany, with a forecast surplus of $187bn (see chart).

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China and Germany are, of course, very different from each other. Yet, for all their differences, these countries share some characteristics: they are the largest exporters of manufactures, with China now ahead of Germany; they have massive surpluses of saving over investment; and they have huge trade surpluses. (See charts.)

Both also believe that their customers should keep buying, but stop irresponsible borrowing. Since their surpluses entail others’ deficits, this position is incoherent. Surplus countries have to finance those in deficit. If the stock of debt becomes too big, the debtors will default. If so, the vaunted “savings” of surplus countries will prove to have been illusory: vendor finance becomes, after the fact, open export subsidies.

I am beginning to wonder whether the open global economy is going to survive this crisis. The eurozone may also be in some danger. Last week’s interventions by Wen Jiabao, China’s premier, and Wolfgang Schäuble, Germany’s finance minister, illuminate these dangers perfectly.

The core of Mr Schäuble’s argument was not about the mooted European Monetary Fund, which could not, even if agreed and implemented, alter the pressures created by the huge macroeconomic imbalances within the eurozone. His central ideas are: combining emergency aid for countries running excessive fiscal deficits with fierce penalties; suspending voting rights of badly behaving members within the eurogroup; and allowing a member to exit the monetary union, while remaining inside the European Union. Suddenly, the eurozone is not so irrevocable: Germany has said so.

Three points can be drawn from this démarche from Europe’s most powerful country: first, it will have an overwhelmingly deflationary impact; second, it is unworkable; and, third, it might pave the way for Germany’s exit from the eurozone.

I explained the first point last week. If Germany gets what it wants, the world’s second-largest economy would play an altogether negative role in the search for a way out from the global slump in aggregate demand. The eurozone would not be exporting the demand the world now needs. It would export excess supply, instead.

Imagine that weaker eurozone countries were forced to contract their fiscal deficits sharply. This would surely weaken the entire eurozone economy. But the result would also be fiscal deterioration in Germany and France. Imagine that Germany then did don the hair shirt. Would it instruct France to do the same? After all, France already has a general government deficit forecast by the Organisation for Economic Co-operation and Development at close to 9 per cent of gross domestic product this year. Does Mr Schäuble imagine France could be fined? Surely not. Yet it is not Greek public finances that threaten the stability of the eurozone. These are a mere bagatelle. The threat is the public finances of big countries. Since Germany could not force such countries to behave and has no chance of expelling any member it disapproves of from the eurozone, it would have to leave itself. That is the logic of Mr Schäuble’s ideas. This must be obvious to him, too.

Germany is in a supposedly irrevocable currency union with some of its principal customers. It now wants them to deflate their way to prosperity in a world of chronically weak aggregate demand. Mr Wen has the same idea. But the economy he wants to pursue this goal is the US. Fat chance!

Speaking at the end of the National People’s Congress, Mr Wen declared: “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.” He also insisted he was worried about the safety of China’s dollar investments.

What, I wonder, does Premier Wen mean by this, apart from telling the US to leave China’s exchange rate policies alone? If the US desire for a weaker dollar is “protectionist”, how much more so is China’s determination to keep its currency down, come what may? There is nothing evidently “protectionist” about asking a country with a huge current account surplus to reduce it, at a time of weak global demand. If I understand China’s declared position correctly, it wants the US to deflate itself into competitiveness, instead, via fiscal and monetary contraction and, presumably, falling domestic prices. That would be dreadful for the US. But it would be dreadful for China and the rest of the world, too. It is also not going to happen. China surely knows that.

Behind all this is a fundamental divide. Surplus countries insist on continuing just as before. But they refuse to accept that their reliance on export surpluses must rebound upon themselves, once their customers go broke. Indeed, that is just what is happening. Meanwhile, countries that ran huge external deficits in the past can cut the massive fiscal deficits that result from post-bubble deleveraging by their private sectors only via a big surge in their net exports. If surplus countries fail to offset that shift, through expansion in aggregate demand, the world is inevitably caught in a “beggar-my-neighbour” battle: everybody seeks desperately to foist excess supplies on to their trading partners. That was a big part of the catastrophe of the 1930s, too.

In this battle, the surplus countries are most unlikely to win. A disruption of the eurozone would be very bad for German manufacturing. A US resort to protectionism would be very bad for China. Those whom the gods wish to destroy, they first make mad. It is not too late to look for co-operative solutions. Both sides have to seek to adjust. Forget all the self-righteous moralising. Try some plain common sense, instead.

martin.wolf@ft.com
More columns at www.ft.com/martinwolf

Copyright The Financial Times Limited 2010. Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others.

By Jonathan Anderson 10.03.31 11:52

Crude Calls on Global Imbalances

Clamor over emerging market surpluses and China's exchange rate conveniently shucks off the hugely dominant effect of oil prices

[Click for Chinese Version]

(Caixin Online) Splashed across the pages of every financial periodical recently, global imbalances have become a focal point of interest for investment research houses and leading lights of the academic community. In past months, the issue has crystallized in the form of raucous political debate over the value of the Chinese renminbi.

The common refrain to the average investor plays out as a scenario of living on borrowed time – the U.S. and other developed countries have been propping up their spending with cheap foreign funds at low interest rates. The emerging bloc, and in particular, China, has artificially weak consumption demand and has essentially supported growth by selling goods to the advanced world, keeping exchange rates cynically pegged at an undervalued rate in the process. Heavy central bank intervention is the lubricant that holds this pernicious system together, as ever-increasing surpluses are recycled directly back into the developed world to finance rising export purchases.

The U.S. and European economies can stabilize, but can't begin to grow until the emerging world stops living at their own expense and starts pulling its own weight. This entails a wrenching change in the growth model, where sharp currency appreciation is the singular answer to removing distortions that prevent domestic consumption. Otherwise, the rising weight of never-ending surpluses and intervention risks will lead to bubbles. Then, collapse. Fate stares straight into the eyes of the global economy.

A Plight Fantastic

These imbalances have been exaggerated. First, imbalances were never as large as commonly believed – and they're even smaller now. There was a clear widening in emerging market surpluses and developed-country deficits from 2000-06, but one that probably only accounted for a small fraction of growth and consumption. Since 2007, those gaps have narrowed visibly, and as of 2010, we are not far off from our best estimate of historical "balance."

Secondly, it's mostly about oil prices. China did see a sharp rise in its own surplus balance over the past decade, but mainland surpluses never contributed more than one-quarter to the total emerging market increase. Rather, by far the single most important factor was oil and fuel, which accounted for over half of cumulative imbalance.

Lastly, the main drivers of rising surpluses were supply shocks. Everyone points to low emerging consumption ratios, but on a structural basis these are almost exactly the same as in the advanced world. And the more recent fall was not due to weak consumer spending but rather to a sudden supply-driven expansion in the GDP denominator. Among oil exporters, this reflected the impact of rising commodity prices, and in China this was due to the rapid rise of steel and other heavy industrial capacity.

If we take these views as a guide to future trends, they suggest that the global imbalances – when viewed from the perspective of the emerging world – will likely stabilize and then continue to subside going forward; this is clearly what stable fuel prices and relative emerging market growth decoupling would imply, even in the absence of major changes in economic strategy. But for China, this is not necessarily true. Much depends on the current pace of new industrial capacity creation and future policy decisions on the renminbi exchange rate.

The Din on China

Partitions are typically drawn between US deficits on one side and, Chinese and Asian surpluses on the other. But the gap between the "emerging" and "developed" regions as a whole are neglected. So even if imbalances don't look particularly onerous for the world economy in the aggregate, don't we have a much bigger problem if we just concentrate on the troubled "trans-Pacific" axis?

Crawling even further into this tunnel, if the bulk of the increase in emerging market surpluses was driven by acute imbalances in China, can't we say that the recent improvement in relative current account positions is all "just temporary" because of the role of massive mainland fiscal and monetary stimulus policies, which kept domestic demand strong in the face of falling exports? In other words, once export markets stabilize and the Chinese government reverses its unusually expansionary stance, won't surpluses jump right back to previous highs?

The answer to these questions would be mostly "no." The U.S. does loom overwhelmingly large in explaining developed deficits – but the same is not true for China. Despite all the hand-wringing over the renminbi exchange rate, by far the biggest driver of emerging surpluses has in fact been oil prices.

(Chart 1)

If you look at the breakdown of the emerging current account balance in Chart 1, China was not even close to being the biggest contributor to the 1999-2006 upsurge – that honor goes to emerging market oil and fuel exporters, who accounted for more than half of the total increase. In fact, at no time during that period did China account for more than one-quarter of the cumulative adjustment from the 1990s average (roughly the same contribution as for other non-fuel emerging markets, see Chart 2).

(Chart 2)

Nor did China have much to do with the reversal of the past few years; once again, the main driver here was the sharp drop in oil prices in 2008-09.

This is not to say that the mainland economy didn't play any role at all; from the charts, it clearly did. But the most significant factor behind the dramatic rise and more recent decline was nonetheless oil prices. And even if Chinese surpluses were to jump back to previous highs (which, we should add, is not the base case scenario), the impact on the overall EM balance would be minimal.

But aren't oil prices really just another proxy for China? The usual perception is that the mainland is now the sole determinant of commodity prices, so can't we say that EM surpluses really are mostly about China after all?

Not according to the numbers. On the one hand, if we look at China's role in the steel market, for example, we find that mainland consumption rose from 15 percent of global consumption in 1999 to nearly 33 percent in 2006 – accounting for a stunning two-thirds of the overall increase in consumption during the same period (and much more today, see Chart 3); clearly China was the marginal driver of demand and pricing here.

(Chart 3)

However, as we saw in Charts 1 and 2, the main force behind emerging imbalances was not general commodity and materials exporters – it was just oil and fuel exporters. And China accounted for only slightly more than 5 percent of total oil consumption in 1999 and still just 8 percent seven years later, which puts the marginal contribution at around one-quarter of annual new demand (Chart 4). In other words, it's much more difficult to argue that the mainland was "driving" markets here in the same sense; and in fact from the chart it's immediately evident that other emerging markets had a more important impact on marginal demand in aggregate.

(Chart 4)

Now, to return to the initial point above, it's clear from the data that the U.S. economy was virtually the sole contributor to developed deficits. As you can see from Chart 5 below, the U.S. current account balance fell dramatically for 15 years between 1990 and 2006, while the rest of the advanced world actually had a rising surplus position over the same period.

(Chart 5)

However, when we look at the bilateral composition of the U.S. goods and services trade deficit (a close proxy for the current account deficit) in Chart 6, the story is essentially the same as before. Looking at the movements from the late 1990s through 2006, when the overall U.S. deficit worsened from 2 percent of GDP to nearly 7 percent of GDP at the trough, a full three percentage points of that adjustment came from other advanced economies and from fuel imports; only two percentage points came from China and other non-fuel emerging markets. And the recent drop in the U.S. deficit had almost nothing to do with China; again, it was oil prices and developed trade that explains the entire swing over the past 18 months.

(Chart 6)

So whether we look at global aggregates or just the U.S. in particular, there is little evidence to suggest that Chinese surpluses have played "the" leading role.

Jonathan Anderson is head of Asia-Pacific Economics for UBS.

本文网址: http://english.caing.com/englishNews.jsp?id=100130781&time=2010-03-31&cl=111&page=all

• 

• MARCH 6, 2010, 10:35 A.M. ET

Zhou Signals Yuan Policy Shift

By ANDREW BATSON and TERENCE POON LIU LI

BEIJING--Central bank Gov. Zhou Xiaochuan said China will eventually move away from its current exchange-rate policies, which he described as a temporary response to the global financial crisis, but downplayed the idea that a move could come in the near future.

Mr. Zhou's comments Saturday at a press conference were the most direct suggestion to date by a Chinese official that the yuan's current de-facto peg to the dollar will not be maintained indefinitely. Previously, government officials have stressed currency stability without much qualification, and rejected foreign pressure to allow the yuan to strengthen.

Mr. Zhou said the current policy – which has kept the yuan's value basically unchanged against the dollar since July 2008 – was a "special measure" adopted in unusual circumstances. "This is a part of our package of policies for dealing with the global financial crisis," he said. "These kinds of policies sooner or later will be withdrawn."

Economists and currency-market participants increasingly expect that China will at some point this year allow its currency, which is formally known as the renminbi, to rise against the U.S. dollar. Inflation in China is picking up as the economy recovers, a problem many economists say a stronger currency could address.

Trade frictions are also on the rise. The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe as well as China's Asian neighbors. For those critical of Chinese currency policy, Mr. Zhou's indication that he is considering an exit from the peg was welcome.

"It is encouraging that Gov. Zhou's statement suggests that the move to a managed float of the renminbi will be resumed once the global recovery firms up," said Eswar Prasad, a professor at Cornell University who previously headed the International Monetary Fund's China desk. "Maintaining an undervalued exchange rate certainly benefits China, but at the expense of other countries that lose their relative competitiveness in foreign trade."

Mr. Zhou's remarks don't necessarily mean that a change in the currency is imminent. China's Ministry of Commerce has stressed the need to continue present policy, especially as the recovery in the export sector remains fragile. On Friday, Premier Wen Jiabao reaffirmed that China will continue to keep the yuan "basically stable" – though that language is vague enough to allow the leadership some flexibility. Mr. Zhou himself said prospects will depend on how the global economy evolves.

"If we are to withdraw from unconventional policies and return to conventional economic policies, we need to choose the time very carefully. This includes the exchange rate policy for the renminbi," Mr. Zhou said, using the Chinese currency's official name. "The G-20 Pittsburgh summit also particularly pointed out the need to avoid the premature withdrawal of stimulus policies."

In addition to assessing the uncertain global economic outlook, Beijing also has to decide the tricky issue of exactly how to lift the current peg to the dollar. A gradual strengthening of the yuan would be easier on exporters but would attract foreign funds seeking to profit from further appreciation. A one-off revaluation, on the other hand, could stem such inflows but would hit exporters hard.

The political climate abroad is becoming less and less receptive to such nuances. U.S. President Barack Obama told Democratic senators earlier this year that he will "get much tougher" with China on trade issues, including the currency. The U.S. Treasury in April also faces its annual decision on whether to formally label China a "currency manipulator," a move it has never yet taken.

Chinese officials have long bristled at outside criticism on the currency, and Mr. Zhou said he is opposed to what he called "politicizing" exchange-rate policy. But he indicated a willingness to address currency issues in the context of the Group of 20 nations' discussions on maintaining balanced global economic growth.

And Mr. Zhou emphasized that China's exchange-rate policies are not set in stone for the long term, since they need to adapt to changes over time in the structure of Chinese economy. "The exchange-rate mechanism and the price of the renminbi are in a dynamic process of continuous change," he said. "So they will differ in different periods."

—Liu Li contributed to this article.

Write to Terence Poon at terence.poon@dowjones.com and Victoria Ruan at victoria.ruan@dowjones.com

七国集团的前世今生

王江 雨 http://blog.sina.com.cn/jiangyuwang 2010-02-07 02:37:41

金融监管的故事系列：

七国集团的前世今生

王江雨

2009年是国际经济关系史上一个重要的年份。在这一年的九月，包括发展中国家和发达国家在内的G－20（“二十国集团”，不过还是G- 20说着简单容易）在美国匹兹堡峰会上宣布自身将取代“八国集团”（G8）成为当代国际经济事务的主要议事机构。自此，八国集团这个煊赫数个世纪的“世界 经济黑帮”，虽然还没有被正式取缔，但也气息奄奄。

G8没有彻底死去的原因，据说是加拿大的竭力坚持。今年（2010年）6月25日到 27日在加拿大安大略省Huntsville召开的G8会议，将会是历史上最后一次。近年来加拿大在国际社会早已风光不再，甚至在世界贸易组织（WTO） 也被排挤出了核心谈判小组（所谓的Quad早已不存在），所以加拿大要求2010年会议照常举行，无论如何也要以东道主的身份抓住G8这次最后的疯狂露露 脸。

说是G8，其实只是G7(“七国集团”)，包括美国、日本、德国、法国、英国、意大利和加拿大。俄罗斯的叶利钦在1997年挤挤擦擦 进入该机团，并首次与其他国家首脑一起以“八国首脑会议“的名义共同发表”最后公报“，但这么多年来俄罗斯一直是自取其辱，从来只算个花瓶，重大决策根本 没有说话的份。七国集团最重要的功能是讨论国际经济，在这方面俄罗斯甚至连花瓶也当不上，因为经济问题依然是正式的七国体制，包括七国财长会议，俄罗斯公 然被排除在外。就算在俄罗斯所擅长的政治与安全问题上，也一般是七国首脑在美国的领导下径自达成一致，根本没有人真正待见俄罗斯。说实话这十多年来真不知 道俄罗斯在八国集团里面图个什么。也许正是因为在西方首脑群里遭到忽视和蔑视，俄罗斯领导人才常常口出狂言，在军事问题上威吓西方，其实如同调皮的孩子， 上蹿下跳图的就是引起个大人的注意。

现在媒体讲起G7都是泛泛而论，好像这个集团天造地设，自古至今都存在似的。其实G7的来历相当有趣，一开始也并不是刻意的设计，而是因为一些偶然事件引 发的会面。而G7的某些成员的加入，也并不是因为这些国家本身的重要性，而是基于一些非常偶然的因素。

1970年代是国际金融史上非常有趣味的时代。二战后的布雷顿森林体系（Bretton Woods System，建于1944年)，实行的是黄金－美元本位体系下的固定汇率制，即美元按照35美元一盎司黄金的价格与黄金挂钩，而其他国家的货币则与美元 挂钩，各国有义务维持汇率上下浮动不得超过10%，但各国也有权随时以35美元一盎司的价格向美国财政部求购黄金。美国如此托大，一是因为有足够的黄金储 备（二战结束时，美国拥有世界黄金总量的60%），二是相信其他国家有理由长期持有美元。的确，在整个1950年代，欧洲经常有”美元荒“的情形，但世易 时移，到了60年代，欧洲和日本迅速崛起，对美出口急剧扩大，美元持有量大大增加，美国出现了高额的贸易赤字，也无法再应付来自其他国家的美元兑换黄金请 求。1971年8月15日，尼克松总统宣布停止美元兑换黄金，并且对所有进口征收10%的附加税。这种手段在今天看起来近乎流氓，但在1970年代，西方 国家几乎无条件依赖美国军事保护的情势下，也就只好忍忍算了。但这一事件毕竟意义重大，标志着美元－黄金本位体制的崩溃，而世界货币体系也如前美联储主席 保罗.沃尔克所说的“浮动和漂移”时期，也就是动荡不安，不知何去何从的状态，国际层面的改革进展缓慢，各国国内通货膨胀加剧，并且尽管没有多少人意识 到，第一次石油危机也在逼近。当然，G7也就快不呼而出了。

1973年，那是一个春天，时任美国财政部长的乔治.舒尔茨邀请他的英国、法国和德国同僚参加在白宫一层图书馆举行的一次非正式会议，讨论国际国际体系的 改革，包括美元对其他国家货币的汇率问题。会议地点的选择是为了表明这是个非正式、私密但又意义重大的会议。但据参会者回忆，其实会议也没有达成实质性的 协议，无非是大家在一起喝喝咖啡吹吹牛而已。但证之以后的个人发展，参会者的身份确实非同小可。来自法国的瓦勒里·季斯卡·德斯坦当年不过39岁，他在第 二年就成为法兰西第五共和国总统。而来自德国的赫尔穆特·施密特也在第二年成为联邦德国总理。舒尔茨比较没出息，但以后也担任里根时代的权 利极大的国务卿。更重要的是，这个当时被称为”图书馆集团“的神秘小帮派，就是后来的G7的前身。

非常耐人寻味的是，当时的世界第二经济大国日本并没有被邀请参加这次会议。这是为啥呢？日本在60年代中期已经完全成为了发达国家的一员，日本代表也频频 出入于国际场合，但始终脱不了被边缘化的二奶命。这当然有地缘政治上的原因，日本在政治和安全上完全依附美国，而美国 和欧洲不希望日本扮演重要角色。也有文化和人种上的原因。日本财政部原次官（副部长）行天丰雄回忆说，“如果你前往经济合作与发展组织，你能看到代表们在 一间宽敞气派的会议室碰头，圆桌周围坐着24个国家的代表。而当日本代表团第一次进入会议室时，只有它的成员有着黑色的直发，其他全是白种人。” “在国际清算会议上，来自欧洲国家的中央银行官员们聚集在一起，喝着鸡尾酒，享用着午餐会和晚餐，不停地谈论着黄金、美元及英镑的情况，轮换着使用英语、 法语或是德语。” 这种场合之下，日本代表几乎没人搭理，也无从插嘴。实际上中国或是日本代表所面临的这种境况，在今天也没有多大改变。

但日本并不气馁，也不将怨怒形诸于外，而是化悲痛为力量，积极寻求融入国际社会。日本为加入图书馆集团，颇使了一些外交手段。日本大藏大臣爱知揆一很是个 有气量的人物，他发挥穆罕默德的“山不来找我，我就去找山”的精神，在1973年9月肯尼亚举行的国际货币基金组织年会上邀请图书馆集团的四位部长到日本 大 使官邸喝酒吃饭。爱知揆一这时耍了个手腕。他刚开始要求各部长带上一个副手，给人的印象是有大事要商谈。午餐之后，他又要求除五位部长外的所有人离开房 间。其实这五个大员就是在一起喝清酒，没有谈到任何实质性内容。酒酣耳热之际，年轻气盛的德斯坦邀请大家下次在法国继续会谈，这样四国部长会议就正式变成 了五国部长会。但人算不如天算，老练的爱知揆一自己却没有如愿，他就在11月五国集团会议召开的前几天去世，真的是为日本做到了鞠躬尽瘁。

意大利的加入也颇具偶然性，是因为意大利里拉很不稳定，而有一次关于美元贬值的协议也拉意大利参加了。这样在1975年11月15日至17日，五国集团在 法国巴黎郊外 的郎布依埃城堡（Rambouillet)召开了第一次经济首脑会议，参会者有法国总统德斯坦、美国总统福特、英国首相威尔逊、德国总理施密特、意大利总 理莫罗、和日本首相三木武夫。1976年6月在美属波多黎各召开的会议上，出于平衡原因也邀请了加拿大，这样G7就正式成型。

从1975年起算，到2009年，G7（以及后来的G8)已经召开了35次会议。虽然不算一个正式的国际组织，也没有常设的秘书处，G7议事的气势长期以 来如同世界政府。实际上，多项在历史上发挥重大作用的行动计划也都是在G7的框架 内达成，如经济领域的著名的广场协议（为了吃日本的豆腐）以及对亚洲金融危机的反应，政治领域的科索沃战争的发动以及对战争费用的分摊等。进入二十一世纪 以后，新兴经济体迅速崛起，G8对重大国际问题的讨论显得既没有提出解决方案的能力也没有广泛代表的合法性。显而易见，如果新兴经济体对其不屑一顾，G8 真 的就成了新加坡《联合早报》一篇评论所说的，“吃G8饭，不干G8事”。2005年7月，在英国苏格兰Gleneagle召开的G8峰会，首次采用 8（八国集团）+5（中国、印度、巴西、南非、墨西哥）的形式，邀请新兴经济体参加。2008年全球金融危机爆发后，G8更显的捉襟见肘，除了清谈之外几 乎什么也做不了。这其中最重要的原因是，没有中国的配合，G8拯救经济并改革全球金融体制的努力无法发挥作用。与此同时，于1999年成立的G-20，本 来是根据G7指示而成立的世界上最大的20个经济体的财长和中央银行行长的非正式对话会，结果无心插柳柳成荫，反倒取代了宗主组织，亲自为G8宣判了死 刑。

新世纪以来，随着中国实力的急剧增长，关于中国是否要加入G8的讨论很多。英国法国对邀请中国有些热情，但美国和日本好像一直比较反对中国加入。中国政府 一向爱出风头，但在这个问题上倒是一直表现得很有尊严，基本上采取的是“不稀罕”的态度，与听到G7就流口水的俄罗斯形成鲜明对比。中国第一次到G8露脸 是在2003年， 当时东道主法国邀请包括中国印度在内的发展中国家参加G8正式会议前的南北领导人非正式对话会议。希拉克总统亲自迎接胡锦涛主席，甚为给面子。此后年年去 晃晃，但在是否要加入的问题上始终没表态。现在这个叫G8的东西终于死了，咱看谁笑到了最后？

本文地址：http://blog.sina.com.cn/s/blog_3fac2db10100gq5w.html

China won't fold on RMB

By Xin Zhiming (China Daily)
Updated: 2010-02-05 06:54

Analysts say a hasty appreciation of the yuan will be detrimental to China's economy

China yesterday urged the United States to "objectively and rationally" consider its renminbi exchange rate while economists said the country is not likely to bow to US pressure to hasten an appreciation of the yuan.

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"China does not seek a trade surplus with the US," said Foreign Ministry spokesman Ma Zhaoxu yesterday.

The yuan's exchange rate against the dollar is largely at a reasonable level, he added, and the yuan's value is not a major element in the US trade deficit with China.

US President Barack Obama has vowed to "get much tougher" with China on trade and currency issues to fuel US exports and narrow its trade deficit with China, the world's largest exporter.

With the US promising to sell arms to Taiwan and Obama planning to meet with the Dalai Lama, analysts said the possibility of a speedy yuan appreciation is slim.

"Even if the yuan's value rises, it is China's own business," said Li Jian, economist with the research institute under the Ministry of Commerce. "China will not (appreciate the rate) in accordance with the US' demand."

He said the yuan's value will largely be stable this year without any sudden or quick revaluation.

What China should consider is its own economic stability, which bears heavily on the global economic recovery, analysts said. China reportedly contributed to about half of the global economic growth last year.

"Although China's export sector is recovering from deep slumps last year, its growth is not yet stable," said Liu Dongliang, currency analyst of the China Merchant Bank. "A quick yuan appreciation will be detrimental to China's economy, especially considering that the government is expected to gradually withdraw its stimulus policies."

China's stimulus package helped expand the economy by 8.7 percent year-on-year in 2009. Economists said that with the nation's exit strategy implemented, its economy could face the danger of a slowdown, especially in the second half of this year.

Analysts said the market expected the yuan's appreciation to lose momentum due to China's drive to stabilize economic growth this year.

"Even if the yuan appreciates, it should be done after the US softens its stance," Liu said.

China does not want to be seen as too responsive to US pressure and if Sino-US tensions continue, the possibility of a hasty yuan appreciation is slim, he said.

The nation, responding to the US' recent and provocative actions, has announced for the first time unspecified sanctions against US firms involved in the Taiwan arms sale. China said it will also curtail military exchanges with the US and cooperation on a range of global and regional issues.

Analysts said it is unreasonable to accuse China of manipulating its currency and trying to seek a trade surplus with the US.

It has been a long-standing theory that the different economic structures of the two countries account for their trade gap, due to China's relatively low costs in manufacturing and high production costs in the US.

"Even if the yuan appreciates and Chinese exports to the US are reduced, the US would import those goods from other low-cost countries," Li Jian said. It won't help employment in the US, he added.

Analysts also said that Obama's criticism of the yuan may be an appeal to a domestic audience rather than pressuring China.

Li Wei, a scholar on US studies with Tsinghua University, said that Obama is consistently riling China up these days because he wants to please voters and reverse his declining popularity as midterm elections draw near.

China's role as a rising power has also made the US feel uneasy, he said.

Li Xiaokun and Ai Yang contributed to the story

• 

• FEBRUARY 4, 2010, 11:40 P.M. ET

China's Current-Account Surplus Fell in 2009

• 
  

By ANDREW BATSON

BEIJING -- China's current-account surplus, the broadest measure of its trade balance, fell sharply in 2009, the government said Friday, reflecting the dramatic economic adjustments forced by the global financial crisis.

According to preliminary estimates by the State Administration of Foreign Exchange, the current-account surplus dropped to $284.1 billion, down by about a third from the previously reported surplus of a record $426.1 billion for 2008. It was the first outright decline in the surplus since 2001.

The narrowing of China's current-account surplus over the past year has been applauded by many analysts who think the combination of big U.S. deficits and large surpluses in China and some other nations is destabilizing for the global economy. The Group of 20 major economies is trying to find ways to reduce these so-called "global imbalances."

The main driver of the shift in 2009 was the shrinking of the trade surplus to $249.3 billion yuan, from $368.7 billion in 2008, according to SAFE's figures. China's exports fell last year as global demand collapsed, but the nation's stimulus plan helped support imports. The total figure for the current-account surplus also includes a deficit in trade in services of $28.7 billion, as well as income from abroad and other transfers.

In relative terms, China's current-account surplus shrank to 5.8% of annual gross domestic product in 2009 from 9.4% of GDP in 2008, which itself was a decline from the peak of 11% of GDP in 2007.

However, some economists think China's current-account surplus could start to rise again this year. China's exports have started to recover in recent months, and authorities have been reluctant to take measures – such as allowing the currency to appreciate – that economists argue would help shrink the surplus.

SAFE also said China ran a surplus on the capital account of $109.1 billion in 2009, a sharp increase from $18.96 billion in 2008, though shy of the record $110.66 billion in 2004. The capital account includes foreign investment and other financial transactions.

The agency also offered some new detail on the accumulation of China's foreign-exchange reserves, which increase when the central bank buys up money coming into the country on either the capital or current accounts.

If the impact of currency moves and price changes on the value of the reserves are stripped away, and only new transactions are recorded, SAFE said, the reserves increased by $382.1 billion in 2009. That compares to an increase of $453.12 billion in the nominal value of the reserves over 2009, according to statistics from the central bank.

Write to Andrew Batson at andrew.batson@wsj.com

Beijing dismisses Washington’s mounting anger

By James Politi and Daniel Dombey in Washington and agencies

Published: February 3 2010 23:48 | Last updated: February 4 2010 10:05

China on Thursday dismissed US political pressure to revalue its currency, saying the yuan was already at a reasonable level and that China did not deliberately pursue a trade surplus with the United States.

”At the moment, looking at international balance of payments and forex market supply and demand, the level of the yuan is close to reasonable and balanced,” Ma Zhaoxu, a Foreign Ministry spokesman told a regular news briefing, repeating China’s standard line on its currency.

”Accusations and pressure do not help to solve the problem,” he was quoted by Reuters as saying.

US political heat on China intensified on Wednesday after Barack Obama, president, raised the issue of a weak Chinese currency a day after the US Senate condemned cyberattacks on Google.

Speaking to Senate Democrats, Mr Obama warned that the US should not back down from trade with China.

“For us to close ourselves off from that market would be a mistake,” he said. But he added that currency rates needed to be addressed internationally “to make sure our goods are not artificially inflated in price and their goods are artificially deflated in price”.

Tensions between Washington and Beijing have risen in the wake of a $6.4bn (€4.5bn, £4bn) US arms deal with Taiwan and ahead of an expected meeting this month between Mr Obama and the Dalai Lama, the Tibetan spiritual leader.

US senators on Tuesday voted unanimously to condemn the cyberattacks on Google and other companies that caused the search engine group to threaten to quit China.

“It is important that the US not stand idly as China infringes on the free flow of information,” said Arlen Specter, the Pennsylvania Democrat.

A senior Democratic senator also asked 30 large technology groups to provide details of their human rights practices in China.

Dick Durbin, the Illinois senator and assistant majority leader, sent a sharply worded request for information to US groups such as Facebook, Apple, IBM, Amazon and Oracle and to international companies including Nokia, Vodafone, SAP, RIM and Toshiba.

He said Google set “a strong example in standing up to the Chinese government’s continued failure to respect the fundamental human rights of free expression and privacy. I look forward to learning more about whether other ... companies are willing to follow Google’s lead”.

Mr Durbin said he expected the responses to include information on the companies’ business in China and any efforts to ensure their products and services did not “facilitate human rights abuses by the Chinese government”.

Next week the congressional executive commission on China, which was created in 2000 to coincide with the country’s accession to the World Trade Organisation, will hold a hearing focused on the cyberattacks, including the intellectual property protection issues that it raised.

Dennis Blair, the US’s director of national intelligence, highlighted China’s “growing international confidence and activism” in testimony to Congress this week.

But he added that Beijing’s policies were largely set by its commercial interests and that its “core priority remains ensuring domestic stability”.

In his evidence, Mr Blair listed the global “cyberthreat” to the US ahead of all other threats Washington faced.

He described the recent cyberattacks on Google as “a wake-up call to those who have not taken this problem seriously”.

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On China, Obama says U.S. must addresscurrency rates

Reuters
Wednesday, February 3, 2010; 11:43 AM

WASHINGTON (Reuters) - President Barack Obama said on Wednesday it was important to address currency rates with trading partners such as China to ensure U.S. goods were not facing a disadvantage.

Obama said his administration was pushing China and other nations to enforce existing trade rules and open their markets in a reciprocal way.

"One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our ... goods are not artificially inflated in price and their goods are artificially deflated in price," Obama told senators from his Democratic Party.

"That puts us at a huge competitive disadvantage."

A recent report by the Peterson Institute for International Economics estimated China's yuan was undervalued by about 30 percent against all other world currencies and about 40 percent against just the dollar.

The Washington think tank also said four other East Asian economies -- Hong Kong, Malaysia, Taiwan and Singapore -- needed to let their currencies rise in value to correct imbalances in global trade.

U.S. manufacturers have complained for years that Beijing's currency policies gives Chinese companies an unfair price advantage in international trade. However, China has resisted pressure on the issue and maintains its exchange rate policy is an internal matter.

Since taking office, Obama has twice declined to formally label China as a currencymanipulator but faces a third decision on that issue in April when the Treasury Department's next semi-annual report comes due.

Asked by Senator Arlen Specter whether he would support revising or revoking a trade treaty with China, Obama said that would be a mistake.

"Our future is going to be tied up with our ability to sell products all around the world, and China is going to be one of our biggest markets and Asia is going to be one of our biggest markets. And for us to close ourselves off from that market would be a mistake," he said.

"It's got to be reciprocal. So if we have established agreements in which both sides are supposed to open up their markets, we do so and then the other side is imposing a whole set of non-tariff barriers in place, that's a problem. And it has to be squarely confronted," he said.

The president, who cited a U.S. decision to impose a "safeguard" tariff on tire imports from China last year, said his administration was pushing for trade rules to be enforced.

"The approach that we're taking is to try to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways," he said.

(Reporting by Jeff Mason; Editing by Doina Chiacu)

Major trade disputes between China and the US

Published: October 8 2009 10:12 | Last updated: January 6 2010 03:45

A list of major trade disputes between China and the US since Beijing’s accession to the World Trade Organization in 2001:

Date	Complainant	Issue
March 2002	China	China joins other countries in a complaint about safeguard measures imposed by the US that increases duties on steel imports
March 2004	US	The US complains Chinese semiconductor producers pay less tax than their foreign competitors
March 2006	US	The US and other countries complain that China has imposed measures including tariffs that adversely affect their auto parts exports
February 2007	US	The US complains that China has granted tax refunds, reductions and exemptions for companies that buy domestic goods
April 2007	US	The US lodges two cases with the WTO on intellectual property rights protection and market access for US movies, DVDs, books and music
April 2007	China	China complains against US duties on glossy paper used in packaging
July 2007	US	A US study says China’s steel industry has benefited over the past 10 years from the “pervasive influence” of financial transfers from central and local government bodies, some of which are alleged to have broken WTO rules
March 2008	US	The US complains about China’s attempt to put the financial information business of international news providers under the control of local rival and regulator, Xinhua news agency
April 2009	China	China challenges a US law banning imports of processed Chinese poultry, saying the ban cannot be justified on health and safety grounds
June 2009	US	The US and European Union complain that China grants raw materials to domestic manufacturers at below-market prices
August 2009	US	Washington complains that Beijing breaks WTO rules by requiring all imported media products to be channelled through state-run distributors
September 2009	China	China complains that US tariffs on Chinese tyres, introduced on September 11, are in excess of the rates permitted under US international obligations to China
September 2009	China	China launches anti-dumping and anti-subsidy investigations into the imports of US car parts and chicken products
October 2009	China	The Chinese Ministry of Commerce issues a preliminary ruling against companies in the US and other countries, accusing them of dumping chemical fibres in China
December 2009	China	China imposes duties on imports of certain speciality steel products from the US and Russia
December 2009	US	The US slaps anti-dumping duties on Chinese steel grating imports
December 2009	US	The US imposes duties of 10 to 16 per cent on Chinese steel piping imports
January 2010	US	The US slaps additional duties of 43 to 289 per cent on imports of Chinese-made wire decking. It follows tariffs ranging from 2 to 438 per cent announced in November 2009 on the products

Research: Justine Lau

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