Chinese premier says Congress showed ignorance on currency

Chinese Premier Wen Jiabao accused some members of Congress of
politicizing trade relations between the U.S. and China by trying to
crack down on Chinese currency manipulation.

Last week, the House passed the Currency Reform for Fair Trade
Act by a healthy bipartisan margin. The bill targets imports from
China and other countries with currencies that U.S. economists
perceive as undervalued.

{mosads}By deliberately keeping the value of its yuan low, China is able to
sell products here at an artificially low price, House Democratic
leaders argue. As a result, U.S. manufacturers – whose prices would be
much more competitive if China allowed the market to set the value of
its currency – go out of business.

Wen said the measure showed U.S. ignorance about Chinese economic decisions.

“…Some in the United States, in particular some in the U.S. Congress,
do not know fully about China,” he said in an interview aired Sunday on CNN’s “Fareed Zakaria GPS”. “They are politicizing the
problems in U.S.-China relations – in particular, the trade imbalance
between our two countries. I don’t think this is the right thing to
do.”

Wen insisted that China is not pursuing a trade surplus with the
U.S. and instead said the country’s goal was to engage in balanced and
“sustainable” trade with other countries. He also argued that the
trade surplus was not “necessarily” linked with the exchange rate.

“We started the reform of RMB exchange rate regime back in the [sic]
1994,” he said. “And since then, the Chinese currency has appreciated
by 55 percent against the U.S. dollar.”

At the same time, the currencies of major economies have been
depreciating while Chinese trade has rapidly grown. He pointed to a
period of rapid trade growth in the United States between 1870 and
1970 when the United States had trade surpluses with many trading
partners and said China’s trade surplus demonstrated a “certain stage”
of the country’s economic development.

Wen also said the trade imbalance between the U.S. and China was mainly
structural in nature because the U.S. has shut down its manufacturing
sector and increased in service products.

“Many of the Chinese exports to the United States are no longer
produced in the U.S., and I don’t believe that the United States will
restart the production of these products – products which are now at
the low end of the value added chain,” he said. “Even if you don’t buy
products from China, you still have to buy them from India, Sri Lanka
or Bangladesh. And that will not help resolve the trade imbalance
between our two countries.”

He also noted that out of 50,000 U.S. companies registered in China,
22,000 of them are export products to the United States so imposing
sanctions on export companies in China also would penalize a large
number of U.S. companies.