AFTER MONTHS of squabbling and difficult relations, the Chinese agreed to cut the US some slack and soften its stance on its currency, the yuan, but insisted it would only do so on its own terms and at its own pace.
Looking at the debt crisis in the euro zone, the world’s biggest and third biggest economies said that they were cautiously optimistic that any fallout would be limited, although they agreed the global recovery was not yet on solid footing and Europe’s sovereign debt woes had added to uncertainties.
“The general view was that the pace of the global economic recovery will be basically maintained,” People’s Bank of China governor Zhou Xiaochuan told a news conference.
As the two sides, one the established superpower and the other seen as an emerging global superpower, opened their second Strategic and Economic Dialogue, the general tone was warmer than for several months.
Vice-premier Wang Qishan had struck a more downbeat note, saying the European crisis had impacted market confidence and brought many uncertainties to the slowly recovering world economy.
In contrast, US treasury secretary Timothy Geithner said the US and China were well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries.
Economic growth in the US and China is broader and stronger than many had anticipated, Mr Geithner said. Even as European nations face challenges, the United States and China, along with India, Brazil and other emerging economies, are in a much stronger position today to overcome the challenges ahead, he said.
President Hu Jintao gave a speech that was low on detail or new material, but was more conciliatory in tone than other public utterances in recent months.
“China will continue to steadily advance reform of the yuan exchange rate formation mechanism following the principles of being independent, controllable and gradual,” he said.
The Chinese government was keen to expand domestic demand to create more balanced growth, Mr Hu said, a sentiment very much in line with Washington’s wishes. They are fearful about their yawning trade deficit with China.
Mr Geithner said the Chinese government was moving in the right direction on the yuan, which has been effectively pegged to the dollar since the global financial crisis worsened in mid-2008.
“We welcome the fact that China’s leaders have recognised that reform of the exchange rate is an important part of their broader reform agenda,” he said.
Mr Geithner has pushed the line that China would benefit from a more market-driven currency, and he reiterated this line yesterday, saying it would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model.
There have been tensions between Washington and Beijing since earlier this year, when China reacted angrily to a litany of complaint from the US about China’s internet censorship; to Washington’s arms sales to Taiwan; and President Barack Obama’s meeting with the Dalai Lama, Tibet’s exiled leader, whom China consider a dangerous separatist.
The annual US trade deficit with China fell to $226.8 billion (€183 billion) in 2009 from a record $268 billion (€216 billion) in 2008. However, Mr Obama is keen to boost exports and has continued to push for action from China.
Yuan forwards now indicate investors expect the Chinese currency to gain 1 per cent against the dollar over the next year.
