China stays firm on yuan value and urges new cooperation

08:33, January 18, 2011      

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Chinese President Hu Jintao urged an end to a "zero sum" Cold War relationship with the United States and proposed new cooperation, but resisted US arguments about why China should let its currency strengthen.

Hu said the dollar-based international currency system is a "product of the past."

Overall though, the president, who will visit Washington today, struck an upbeat tone about ties with the US in a rare interview with two American newspapers, the Wall Street Journal and the Washington Post.

"We should abandon the zero-sum Cold War mentality," he said, and "respect each other's choice of development path."

Hu suggested cooperation with the US in areas such as new energy sources, clean energy, infrastructure development, aviation and space.

He also reassured foreign businesses in China that Beijing would continue to improve laws and regulations affecting them.

And he spoke encouragingly about the outlook for resolving tensions on the Korean Peninsula.

But Hu also indicated he does not accept US arguments for China to let its currency appreciate. Critics say China's undervaluing of the yuan gives it an unfair price advantage in international trade.

Analysts thought Hu's generally conciliatory tone augured well ahead of his Washington meetings with US President Barack Obama and other officials.

"Hu makes it clear that China intends to move forward on opening its markets, freeing up its exchange rate and restructuring its political system, but at its own pace and with little heed to external pressures for more rapid or broader reforms," said Eswar Prasad, a Brookings Institution economist and former International Monetary Fund official.

Last week US Treasury Secretary Timothy Geithner said China would be better off letting its currency strengthen to cap inflation.

But Hu said China is fighting inflation with a range of policies including interest-rate increases, and "inflation can hardly be the main factor in determining the exchange rate policy."

He suggested that inflation was not a big headache, saying prices were "on the whole moderate and controllable." Inflation in China hit a 28-month high in November.

"We have the confidence, conditions and ability to stabilize the overall price level," Hu said.

Hu called the US-dollar-dominated international currency system a "product of the past." He added that it would be a "fairly long process" to make China's own currency an international one.

He also said "the liquidity of the US dollar should be kept at a reasonable and stable level." China has argued that the Federal Reserve's November decision to buy US$600 billion in US government bonds would undermine the dollar's value and lead to competitive currency devaluations by other countries.

The Chinese president responded to complaints that China does not always treat foreign companies registered in China fairly by saying: "Their innovation, production and business operations in China enjoy the same treatment as Chinese enterprises." He added: "China will continue to improve laws and regulations concerning foreign investment."

Hu said he saw "signs of relaxation" in tensions between the North Korea and South Korea.

"Thanks to joint efforts by China and other parties, there have been signs of relaxation," he said, adding that "an appropriate solution to the Korean nuclear issue" could be found.

Source: Shanghai Daily
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