Finance ministers agree to move towards market-determined exchange rates and avoid competitive currency devaluation.
|Geithner says China has recognised that it cannot continue to rely on exports for growth [AFP]|
The US treasury secretary has discussed economic relations with a senior Chinese government official against a backdrop of tensions over China’s currency policy.
The brief meeting between Timothy Geithner and Wang Qishan, the Chinese vice-premier, took place at the airport in Qingdao, in eastern China, on Sunday.
Geithner and Wang are designated as special representatives of their respective presidents on US-China economic issues.
“The two sides exchanged views on US-China economic relations and the preparation for the (G20) Leaders’ Summit in Seoul,” according to a statement emailed by the US embassy in Beijing. It did not elaborate.
The meeting came at the end of Geithner’s trip to the Group of 20 finance ministers and central bank governors meetings in Gyeongju, South Korea, where officials agreed to refrain from competitive currency devaluations and reduce current account imbalances.
Stephen Joske, director of the Economist Intelligence Unit’s China Forecasting Service, told Al Jazeera that “Geithner’s visit to China is mainly driven by domestic politics”.
“There is a midterm general election coming up in a few weeks and he is responding to domestic political concerns in congress that the alleged undervalued exchange rate is causing unemployment in the US,” he said.
“The economics of that are wrong, but it is good politics to blame foreigners for your domestic unemployment problems.”
The US has been pressuring China to allow its yuan to rise more rapidly in response to market forces.
Last week, Geithner delayed a semi-annual report to the US House of Representatives on whether China manipulates its yuan for a trade advantage, choosing instead to press the issue at multilateral meetings including the Gyeongju finance leaders’ meeting and a G20 leaders’ summit next month in Seoul.
Geithner said China was “very supportive” of finding a multilateral solution to reducing global trade imbalances in the G20 meetings.
He repeated he wanted to see China accelerate its move towards a market-determined exchange rate.
“China is well into a very promising and very ambitious programme of domestic reforms to strengthen domestic growth because China recognised that it cannot afford to rely as it has in the past on such an export-dependent model for growth,” Geithner told a news conference.
“We want to see that progress continue,” he said. “Of course as a part of that, it’s not ready for its exchange rate to rise more rapidly in response to market forces.”
In a statement released late on Saturday, Geither said the G20 meeting had agreed that a “gradual appreciation” in the currencies of major trade-surplus nations was required.
“Countries with significantly undervalued exchange rates committed to move towards more market-determined exchange-rate systems that reflect economic fundamentals, as China is now doing,” he said in a statement.
But further efforts to stabilise international economic imbalances were necessary if the recovery from the global financial crisis was going to be successful, Geithner said.
The US House of Representatives earlier this month passed legislation that aims to increase pressure on China by treating currency undervaluation as a subsidy.
It will authorise the US commerce department to apply countervailing duties to offset any price advantage from currencies.