Yuan not to blame for trade gap, Wen says

By Wu Jiao (China Daily)
Updated: 2010-09-23 17:13
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NEW YORK - Premier Wen Jiabao on Wednesday once again dismissed speculation that the exchange rate of the renminbi, or the nation's currency, has been the major contributor to the widening trade gap between the United States and China.

Wen made his remarks just ahead of an important meeting with US President Barack Obama on Thursday, during which the currency and trade issues are widely expected to top the agenda.

During a meeting with 21 well-known public figures, including former treasury secretaries Henry Paulson and Robert Rubin, and Microsoft founder Bill Gates, Wen said the surplus was chiefly due to the structure of trade and investment between both powers.

Wen also reiterated that China and the US should adopt a positive attitude while discussing large-scale fiscal and trade cooperation, and that talks must be held on the basis of equality, mutual trust and mutual benefit.

Wen's comments have come against the backdrop of sustained pressure exerted by some key US politicians who believe the Chinese currency has been intentionally undervalued to aid the nation's exporters. China has, however, consistently maintained that the renminbi has not been central to the bilateral trade imbalance.

US President Barack Obama too had remarked on Monday that China had not done enough to raise the yuan's value, claiming that the currency has been "valued lower than market conditions would say it should be".

Obama, however, was quick to highlight the importance of the Chinese market as far as the US was concerned. "It's a huge market where we should be able to export a lot of goods."

During his meeting, Wen refuted Obama's claims, saying China does not conduct international trade with the intention of pursuing a trade surplus. He said the trade surplus, viewed as a proportion of China's gross domestic product, had actually been declining over the last two years.

While the trade surplus accounted for 9.9 percent of the nation's GDP in 2008, it dropped to 5.8 percent in 2009, and further to 2.2 percent in the first half of 2010, Wen pointed out.

"There's a trade imbalance between the US and China, which is not something we want to see. China doesn't pursue a trade surplus intentionally," said Wen.

China's trade surplus with the US was $119 billion in the first half of 2010, putting it on course to exceed last year's total of $227 billion, according to US Commerce Department data.

The widening trade gap has come at a time when the US is facing an unemployment rate of 9.6 percent.

Pressing China to raise its currency rate will not solve the imbalance in bilateral trade, said Stephen Roach, president of Morgan Stanley Asia and a top professor at Yale.

"The currency fix will not work, despite what you hear from a lot of famous economists and politicians," Roach said. "It didn't work for Japan in the late 1980s. It didn't work for the US when the dollar fell 23 percent on a trade-weighted basis since early 2002."

The US has been devaluing its currency during the past eight years, but that has done little to solve its trade disputes with China or other major world economies, said Roach.

Roach said China must formulate positive policies to stimulate domestic consumption and expand its social security network.

Wen appreciated the suggestion, saying this was exactly what China was doing right now.

In response to questions on investment policy and protection of intellectual property, Wen said expanding domestic consumption, protecting intellectual property rights and promoting sustainable development were key national strategies.

China will treat any overseas firm registered legally in the nation on par with domestic firms, and encourage them to participate in the development of the nation, he said.

Improving Sino-US ties has been a key component of Wen's trip, given how trade frictions between the two sides have snowballed into a major political problem.

PepsiCo Chief Executive Officer Indra Nooyi and former secretary of state Henry Kissinger, who helped re-establish diplomatic ties between China and the US under president Richard Nixon, were the other important delegates present at the meeting with Wen.

The Chinese premier spent 90 minutes listening to and answering their questions at the meeting.

He said China has officially invited US Secretary of Defense Robert Gates to visit China at a proper time.

Bloomberg contributed to the story

China Daily