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Geithner May Fight Alone on Yuan Issue at G-20

Sunday, 26 September 2010 02:44 PM

U.S. Treasury Secretary Timothy Geithner faces a lonely campaign to make China's currency a major issue at the next Group of 20 summit as would-be allies shrink from confronting Beijing.

Pressured by U.S. lawmakers, Geithner vowed last week to mobilize countries at the Nov. 11-12 summit in South Korea to press China for faster appreciation of the yuan.

Interviews with officials from G-20 countries suggest that Geithner -- who has acknowledged that few countries are willing to confront China -- could be leading a posse of one in Seoul.

"The U.S. is more determined than the rest of the G-20 to get something out of China on the yuan," a euro zone monetary official said, speaking on condition of anonymity.

"It's largely a bilateral matter with the rest looking on as spectators, either because they don't count enough or because they aren't very interested," the official said.

South Korean Finance Minister Yoon Jeung-hyun ruled out the yuan as a G-20 topic, saying the forum might take up exchange rates in general or their impact on the global economy.

"But aside from that, I do not believe that it is appropriate to have a discussion regarding the foreign exchange rate or level of a specific country," Yoon said in an interview with Reuters in Paris Thursday.

Geithner's drive to make China's currency policy a G-20 summit issue appears to be a way to buy time for President Barack Obama's administration as it deals with an angry Congress in the run-up to Nov. 2 U.S. elections.

The Obama administration, and Geithner in particular, had largely avoided actions that would antagonize China in past G-20 meetings. But it faces an increasing drumbeat of calls for action on the yuan from beleaguered Democrats who say a stronger Chinese yuan would bring relief to American workers.

In a move likely to increase tension with China, the House Ways and Means Committee on Friday approved a bill that would let the United States slap duties on goods from countries with undervalued currencies.

The bill may never become law, however, because it faces uncertain prospects in the Senate.

Since China's central bank in June said it would let the yuan fluctuate more freely, it has risen 1.8 percent -- accelerating the most as U.S. pressure mounted.

Many U.S. lawmakers believe that China keeps its currency undervalued by as much as 40 percent to stoke exports at the expense of U.S. jobs, a claim questioned by many economists.



China can count on solidarity from its partners in the so-called BRIC countries -- Brazil, Russia and India.

"I believe that this idea of putting pressure on a country is not the right way for finding solutions," Brazilian Foreign Minister Celso Amorim told Reuters last week.

Brazil, he said, enjoyed good coordination with China and "we can't forget that China is currently our main customer."

Russia likewise enjoys its trading relationship with China, exporting raw materials and energy but not the manufactured goods that compete against low-cost Chinese goods. Moscow tends to speak only in general terms about currency flexibility.

"Russia is unlikely to back this," said Evgeny Gavrilenkov, chief economist at Troika Dialog in Moscow.

"Russia does not have a big trade relationship with China, and politically I do not think it is profitable for Russia to back this either," he said.

Visiting New York this past week for the U.N. General Assembly, Chinese Premier Wen Jiabao flatly rejected any link between the level of the Chinese yuan and U.S. trade deficits.

China is increasingly assertive as its economic power grows -- all the more so in neighboring Asia.

It is home to five other G-20 members, most of whom count China as their biggest trade partner.

"The rise of China, the increasing prominence of China, is a fact of life," said Indonesian Foreign Minister Marty Natalegawa.

"It is something that we must all embrace, and celebrate as a matter of fact, because Indonesia is benefiting as well with China's increasing economic prominence," he said.

Japan's recent intervention to push its own currency down from 15-year highs against the dollar makes Tokyo an unlikely standard-bearer for exchange rate rectitude and an awkward partner for any U.S. pressure on China, say analysts.

A second European monetary official predicted talk, but no walk at the G20 meetings.

"It's obvious that we talk about it, but that's as far as it goes. It's not on the agenda of Korea's G-20 presidency and it wont be a major issue," said the official.

"China has basically been pretending to take significant steps on its currency for a long time, and I don't expect that to change for the time being," he added.

© 2018 Thomson/Reuters. All rights reserved.

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U.S. Treasury Secretary Timothy Geithner faces a lonely campaign to make China's currency a major issue at the next Group of 20 summit as would-be allies shrink from confronting Beijing. Pressured by U.S. lawmakers, Geithner vowed last week to mobilize countries at the...
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Sunday, 26 September 2010 02:44 PM
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