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GATA issues international press release about central banker''s suppressed speech
By Mark Drajem
Bloomberg News
Sunday, October 3, 2004
http://quote.bloomberg.com/apps/news?
pid=10000006&sid=aqInugWKloSg&refer=home
WASHINGTON -- China offered no new timetable for
changing a 9-year-old peg of its currency to the
dollar, and warned U.S. policy makers not to press
too hard for a change.
"What we are trying to do is create the conditions for
a market-based exchange rate," Central Bank Deputy
Governor Li Ruogu told bankers at a luncheon in
Washington. "If you force China to change it will hurt
the United States. You destroy a goose that will give
you a golden egg."
Calls for change in the Chinese exchange rate, set
at 8.3 to the dollar since 1995, have grown louder
since the Group of Seven industrialized nations first
recommended more "flexibility" in September 2003.
China on Friday pledged to "push ahead firmly and
steadily" toward a more flexible exchange rate
without providing a timetable for the shift from its
currency peg.
"I don't see any indication that they're going to move
any quicker," said Morris Goldstein, an economist
at the Institute of International Economics who has
called for China to raise the yuan. "There's not very
much to point to in terms of tangible results from the
quiet diplomacy the U.S. has been pushing."
The U.S. and Japan say China's currency is at a
depressed level, giving Chinese producers an unfair
advantage by making their goods cheaper abroad.
U.S. manufacturers and Democratic lawmakers last
week said the undervalued yuan has hurt exports and
cost 2.7 million American factory jobs since January
2001. They sent a formal petition to President George
W. Bush's trade office to take their complaint to the
World Trade Organization.
"I don't think it's a WTO issue," Li said to an audience
that included Harvard University economist Martin
Feldstein and Citigroup Inc. Senior Vice Chairman
William Rhodes.
"No matter how this is worked out, these jobs will not
go back to the United States," he added.
The current economic arrangement is allowing
Chinese companies to deliver low-cost goods to U.S.
consumers, and in order to reduce the trade deficit
the onus is on Americans, he said.
"To change the current account deficit, the U.S.
people have to save more," he said.
International Monetary Fund Managing Director Rodrigo
de Rato said last week that now is "a very good moment"
to change the currency regime. And Treasury Secretary
John Snow said on Friday, "I would like to see China
move more quickly."
Chinese officials, including Zhou Xiaochuan, governor of
the People's Bank of China, have talked about scrapping
the peg to the dollar in favor of a link to a basket of
currencies for at least two years. The central banker, who
met with finance ministers from the Group of Seven
industrialized nations for the first time on Friday, said in
April that giving markets a greater role in setting the
value of the yuan is a "top priority."
Li said today that China needs to reform its banking
sector first before it can change its exchange rate policy.
"How long it will take to get there, I don't know," he said.
Goldstein and the IMF say China needs to raise the value
of the currency in order to ease inflationary pressure.
Li today countered that China has already taken enough
measures to temper growth.
"Starting from last year, we did see some over investment
in some areas," he said. "We tried to mitigate the
problems. Investments have come down, credits are
gradually coming down, all these figures tell as so far, so
good."
Li said eventually the economy will come to a level that
is sustainable and that a 7-8 percent growth target would
allow for a healthy economy for 20 more years.
Some analysts, such as Goldman Sachs Group Inc.
Managing Director Robert Hormats, say an immediate
revaluation could drive up U.S. interest rates, because
it would curb Chinese demand for U.S. Treasury debt.
"What you have in China is a demand gap, but what we
have in the U.S. is a savings gap," Hormats said in an
interview before a meeting with Li today. "The real
question is whether we can raise our savings rate, both
public and private."
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