China stands firm on currency ahead of talks with US

09:20, May 18, 2010      

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China defended again its exchange rate policy on Monday and said its trade surplus would likely slump this year, just days before key high-level talks with the United States in Beijing.

Commerce ministry spokesman Yao Jian said the issue of the Chinese currency's value should not be "politicised".

"The improvement of the yuan's exchange rate regime is the Chinese government's own business," Yao told a news conference.

He had been asked to respond to comments by US Treasury Secretary Timothy Geithner, who said he expected China would allow the yuan -- effectively pegged at about 6.8 to the dollar since mid-2008 -- to rise against the greenback.

"China will improve the yuan's exchange rate regime according to the development of and trends in the global economy as well as the Chinese economy," Yao said.

Beijing is under growing international pressure, led by the United States, to allow for a stronger yuan.

Critics say the de facto peg to the dollar gives Chinese exporters an unfair advantage by making their products relatively cheaper.

Yao's comments came ahead of the so-called "US-China Strategic and Economic Dialogue" at which Geithner and US Secretary of State Hillary Clinton will meet their Chinese counterparts in Beijing on May 24-25.

Geithner has eschewed demands from Congress for US sanctions against China for currency manipulation, preferring quiet diplomacy as US unemployment festers and Congress heads towards mid-term elections later this year.

Yao predicted China's trade surplus, a long-time source of friction with its trading partners, would fall this year as exports are expected to stay weak -- comments apparently indicating Beijing will not soften its stance on the yuan.

"The full-year trade surplus will slump by a large margin and the trade imbalance problem will improve," he said.

"We will keep export policies generally stable given... the volatility of the international financial markets and that (Chinese) exporters were still facing difficulties."

He added that the Chinese currency had gained 14.5 percent against the euro since the beginning of the year in line with the strengthening of the dollar due to the sovereign debt crisis in Europe.

"This will place enormous cost pressure on Chinese exporters and affect (our) trade policy adjustment," he said.

On Monday, the euro slumped to a four-year dollar low despite an EU-IMF rescue package worth almost one trillion dollars designed to prevent the Greek debt crisis from spreading.

China posted a trade surplus of 16.1 billion dollars in the first four months of the year, down 78.6 percent year-on-year, after recording a monthly deficit of 7.2 billion dollars in March -- its first in six years.

Yao predicted last month the trade surplus would shrink by 100 billion dollars this year from 2009, when the figure stood at 196 billion dollars.

Source: AFP(


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