China under growing currency pressure

China under growing currency pressure
By Geoff Dyer in Beijing
Copyright The Financial Times Limited 2010
Published: April 21 2010 09:54 | Last updated: April 21 2010 09:54
http://www.ft.com/cms/s/0/1d692fd2-4d1c-11df-baf3-00144feab49a.html


China is facing growing international pressure to begin appreciating its currency ahead of an important meeting of finance ministers and central bank heads from the G20 countries which starts on Thursday in Washington.

The Indian and Brazilian central bank presidents have made the strongest statements yet by officials from their countries about the case for a stronger Chinese currency.

While most of the public pressure on China in recent months has come from the Obama administration and US legislators, the comments underline that other governments are frustrated with China’s policy of operating a de facto currency peg with the US dollar even as its economy expands at a rapid rate.

Henrique Meirelles, head of the Brazilian central bank, said a stronger Chinese currency was “absolutely critical for the equilibrium of the world economy”.

He added: “There are some distortions in world markets. One of them is a lack of growth and another is China.”

Meanwhile, Duvvuri Subbarao, governor of the Reserve Bank of India, said an undervalued renminbi was imposing costs on other countries, including India.

“If China revalues [the renminbi], it will have a positive impact on our external sector,” Mr Subbarao said. “If some countries manage their exchange rates and keep them artificially low, the burden of adjustment falls on some countries that do not manage their exchange rate so actively.”

Last week, Lee Hsien Loong, prime minister of Singapore, said it was in China’s interest to strengthen its currency.

“Now that the crisis is over, it is really in China’s own interests, for its own calculations, to have greater flexibility in its exchange rate, and to avoid a showdown, not just with America, but really with all the rest of its global partners,” he said.

The increase in international criticism of China comes at a time of relative calm between Beijing and the Obama administration over the issue. The assumption among many US officials and currency analysts is that China has already decided to abandon its peg with the US dollar over the next few months, although the exact timing of any change in policy is still unclear.

Beijing’s currency policy had come in for little public criticism in recent months from developing nations even though many have seen their currencies appreciate sharply, in part because the swift recovery in China’s economy over the last year has provided a huge boost to exports that has been felt especially strongly among its neighbours in Asia and commodity producers such as Brazil.