China hints at stronger renminbi - Move comes ahead of Obama Beijing visit

China hints at stronger renminbi - Move comes ahead of Obama Beijing visit
By Geoff Dyer in Beijing
Copyright The Financial Times Limited 2009
Published: November 11 2009 03:36 | Last updated: November 11 2009 19:11
http://www.ft.com/cms/s/0/3d29feb6-ce71-11de-a1ea-00144feabdc0.html?nclick_check=1


China’s central bank on Wednesday acknowledged the case for a stronger renminbi, days ahead of the arrival in Beijing of US president Barack Obama for talks expected to highlight mounting international concern over Chinese currency policy.

The People’s Bank of China said foreign exchange policy would take into account “capital flows and major currency movements”, a pointed reference to the large speculative inflows of capital that China is receiving and US dollar weakness.

The Bank’s new wording, included in its quarterly report on monetary policy, comes on the heels of growing global pressure for China to strengthen its currency, particularly from the European Union and Japan.

The International Monetary Fund said at the weekend that the renminbi, which was effectively re-pegged to the dollar in the middle of last year after being allowed to appreciate by about 20 per cent against the greenback since 2005, was “significantly undervalued”.

The central bank’s comments contrast with commerce minister Chen Deming who called at the weekend for a stable exchange rate to “create stable expectations” for exporters.

The comments by the commerce minister, who is responsible for trade, may indicate that the central bank’s position has yet to gain support at top levels of the government.

Economists said the new wording from the central bank would give it more flexibility but did not necessarily mean the government would shift policy soon. Indeed, few economists expect China to abandon its effective peg to the dollar before the middle of next year.

The central bank had “hinted at the growing pressures for appreciation but I would temper that with the commerce minister’s comments about the need for currency stability”, said Ben Simpfendorfer, economist at RBS in Hong Kong.

Meanwhile, in Tokyo on Wednesday Tim Geithner, US Treasury Secretary, reiterated his belief in the importance of a strong dollar. “I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar,” he told the Japanese press.

The weakening of the dollar, which on Wednesday dropped to a 15-month low on a trade-weighted basis, has led to concern over its future as the global reserve currency.

The PBoC’s statement coincided with the release of a volley of new data indicating that China’s economic recovery accelerated last month, with factory output increasing at a rate not seen since before the financial crisis. Retail sales also grew strongly.

Additional reporting by Lindsay Whipp