BizNomic

In an annual news conference on Sunday, Chinese premier Wen Jiabao defended his country’s currency policy and said that the currency was not deliberately undervalued to boost exports. In fact, he said that the government’s policy of controlling the exchange rate has boosted imports and helped to increase the economic growth all over the world. In contrast, Krugman, a Nobel Prize-winning economist, said China’s currency policy has a “depressing effect” on economic growth in the U.S., Europe and Japan, as measured by gross domestic product. If the yuan were not undervalued, it would have a “significant” impact on the global recovery, he said in a March 12 speech in Washington. “If we could get some change in China’s currency policy, it would help the world,” Krugman said.

Accusing the US of a protectionist trade policy, the Chinese premier said that it was now up to the US to mend the Sino-American relations. “Some countries’ moves to shore up exports are understandable,” he said. “But what I cannot understand is they devaluate their own currencies while on the contrary push for the appreciation of others’ currencies. I think it is protectionism.”, he said.

Is the Yuan really undervalued ?

President Obama had, on Thursday, called on Beijing to have “a more market oriented exchange rate”. However, Wen said did not seem to relent and instead promised to keep the currency “stable” and at a “balanced level”. “I don’t think the Yuan is undervalued,” Wen said Dollar volatility is a “big” concern and “I’m still worried” about China’s U.S. currency holdings, he said.

Wen urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit.

Wen’s remarks on currency in the face of growing international pressure set the tone for the two-hour and 15-minute session with reporters in which the Chinese premier also admonished the U.S. for hosting the Dalai Lama and selling arms to Taiwan. Wen said Washington had violated China’s sovereignty and territorial integrity and he challenged American leaders to improve ties between the two countries.
“These have seriously disrupted Sino-U.S. relations,” Wen said. “The responsibility does not lie with the Chinese side but with the United States.”

This conference was broadcast live on state television from the Great Hall Of The People, as the premier explained that China would not seek hegemony and in fact would create a level playing field for all business. These statements came in the light of recent accusations that China was becoming an arrogant nation as the Copenhagen Climate Change talks ended without a binding agreement; and the recent Google –Sino spat.
Citing the yawning income gap between urban and rural residents and its unbalanced economy, Wen said China had too many domestic issues to address to focus on influencing affairs overseas. China, he said, would always be a passive nation.

Wen said China wanted more foreign companies to build R&D centers and introduce advanced technology. He also said he would begin meeting with the foreign business community.

The press conference closed out China’s 10-day annual legislative session and is one of the very few opportunities for foreign and domestic journalists to speak to the premier during the year.

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