Interpac Business and Migration Solutions Melbourne Australia

(December 29, 2011)

CHINA will continue to push for an increasingly flexible yuan exchange rate and boost domestic consumption, a foreign ministry spokesman said yesterday after the United States Treasury declined to name China as a currency manipulator.

Since June last year, the yuan exchange rate had become increasingly flexible, spokesman Hong Lei said at a daily news briefing in Beijing.

China's foreign trade is balanced overall and the percentage of trade surplus to GDP is declining, he said.

The nation's current account surplus has been dropping as a percentage of GDP, according to official figures.

In the first three quarters of this year, the surplus was 3 percent of GDP, compared to 5.1 percent in the same period of last year.

"China is going to continue to increase flexibility in the yuan exchange rate and encourage domestic consumption," Hong said.

In its semi-annual report to Congress on the currency policies of major trading partners, the US Treasury said the yuan was still undervalued although it did not label China as a currency manipulator.

The Treasury said that with China's US$3.2 trillion foreign exchange reserves and current account surplus, "the real exchange rate of the renminbi is persistently misaligned and remains substantially undervalued." In recent years, the US has been putting pressure on China to make the yuan exchange rate more flexible.

Some US politicians argued that the yuan's undervalued exchange rate gave Chinese exports an unfair advantage in overseas markets.

The report pointed the finger at Japan, however, for stepping into the currency market to stem the yen's rise and urged South Korea to use such interventions sparingly, Reuters said.

The Treasury criticized Tokyo for its solo yen-selling interventions in August and October that followed a joint G7 action in the aftermath of the March 11 earthquake.

"In contrast to the post-earthquake joint G7 intervention in March, the United States did not support these interventions," the Treasury said, adding that Japan should pursue reforms to revive its domestic economy rather than try to influence the exchange rate.

The US had a US$273 billion trade deficit with China last year.

The US Senate passed a bill this year that would require US government to impose penalties on Chinese imports if it did not adopt market-based exchange rates. If the bill is approved, some are concerned there might be a trade war between the two countries.

But the Treasury report shows the US government prefers dialogue, and not confrontation, with its second largest trading partner.

"The Treasury will closely monitor the pace of yuan appreciation and press for policy changes that yield greater exchange-rate flexibility, a level playing field, and a sustained shift to domestic-led growth, it said.

The report follows the US administration's push for a stronger yuan. Last month, US President Barack Obama urged China to speed up currency reform.

The value of the yuan has risen 4 percent against the US dollar this year and 7.7 percent since China dropped a firm peg against the greenback in June 2010.

A Xinhua news agency commentary said the report "sent out a positive signal." The exchange rate issue had become a political tool in the US from time to time, it said. Pushing for a sudden change was unrealistic, it said. "What is needed is active negotiation and coordination instead of negative response."

Source from Shanghaidaily.com