China Staves Off Pressure

U.S-China summit sees multi-billion dollar business deals but dim prospects for rapid reforms.
By Parameswaran Ponnudurai
2011.01.20
Obama listens to remarks by Hu during a meeting with business leaders in Washington, Jan. 19, 2011.
AFP


If U.S. President Barack Obama used unusually strong words in public to press his visiting Chinese counterpart Hu Jintao on human rights, he was equally forceful in highlighting the need for copyright and currency reforms in China.

But whether any swift steps will be taken by Beijing to embrace these reforms is hard to tell as Hu was mostly evasive on specific actions at a joint White House press conference on Wednesday after his talks with Obama.

"We discussed some disagreements in the economic and trade area, and we will continue to appropriately resolve these according to the principle of mutual respect and consultation on an equal footing," Hu said.

Rapidly-growing and cash-flush China is viewing itself as dealing from a position of strength with the U.S., which is mired in debt and deficits and recovering from its worst financial crisis in decades.

Hu has made it "clear that China intends to move forward in opening its markets, freeing up its exchange rate and restructuring its political system but at its own pace and will resist US pressure for more rapid or broader reforms," said Eswar Prasad, the former head of the IMF's China division.

Statistics

Obama spewed out statistics at the press conference to underscore claims that China was stealing copyright protected work and manipulating its currency.

Quoting Microsoft chief Steve Ballmer, Obama told Hu standing by his side that  "only one customer in every 10" of the US computer software giant's products in China "is actually paying for it."

"And so can we get better enforcement, since that is an area where America excels -- intellectual property and high-value added products and services?".

While crediting the Chinese government for taking steps to better enforce intellectual property rights, he quipped,"I think President Hu would acknowledge that more needs to be done."

The International Intellectual Property Alliance, which represents U.S. copyright industry groups, has estimated U.S. trade losses in China due to piracy at U.S $3.5 billion in 2009.

U.S. customs officials say 80 percent of the fake tennis shoes, clothing, luxury bags and other goods they seize each year at the border come from China.

Trade deficit

Obama was also blunt in his criticism over China's policy of keeping its yuan currency low, blamed by his administration and lawmakers for making U.S. exports too expensive, curbing job growth and contributing to the ballooning trade deficit with China. 

"The RMB (yuan) is undervalued. The Chinese government has intervened very forcefully in the currency markets. They’ve spent 200 billion dollars just recently, and that's an indication of the degree to which it’s still undervalued," he declared.

This may be some of the strongest direct language used by Obama in public after his eight meetings with Hu, especially on the currency issue.

China's currency policy has also caused unhealthy artificial distortions in the global economy, fueling currency wars that threaten to undermine cooperation to sustain global economic recovery, analysts say.

Emerging economies, for example, are embracing capital controls or intervening themselves in the markets to stay competitive with China.
 
Obama said the Chinese leader indicated he would take "new steps" to combat the theft of intellectual property but was largely pessimistic of any major movements on the yuan based on what Hu told him during their closed door talks.

"President Hu is concerned understandably about how rapid this transition takes and the disruptions that may occur in its export sector," Obama said.

"In going slowly on appreciation, China is giving its exporters time to adjust, thereby limiting job losses and containing social unrest," said Mark Wu, an assistant professor at Harvard Law School, arguing that exchange rate should not be at the top of the bilateral agenda.

"Expressionless"

Hu did not utter a word on the yuan at the press conference.

"In fact, while President Obama talked about the yuan, President Hu stood at the podium expressionless and did not provide a response," noted Kathy Lien, director of currency research at Global Forex Trading.

"China clearly disagrees with the U.S. on certain economic and trade issues but knew that they would have to accept some degree of public criticism on the yuan for Obama to avoid a backlash from his constituents," she said.

"Anyone was looking for a groundbreaking announcement from China was sorely disappointed. However...the chance of China acquiescing to the U.S. on their currency policy was slim."
 
A joint statement issued after the Obama-Hu talks briefly said that "China will continue to promote RMB (yuan) exchange rate reform and enhance RMB exchange rate flexibility, and promote the transformation of its economic development model."

Cheap wages

The U.S. feels that China has kept its currency deliberately weak to promote its exports, often at the expense of workers in America who cannot compete against the cheap wages of their Chinese counterparts.

The yuan has risen just about 3.5 percent over the last 12 months against the dollar. In contrast, the Japanese yen has appreciated 10 percent.

On Monday, several U.S. senators, claiming that China's currency is undervalued by as much as 40 percent, called for a bill that would empower the Departments of Treasury and Commerce to investigate the issue.

Still, Obama touted what was believed to be the single biggest “outcome” of the summit — business deals worth more than U.S. $45 billion in exports, including a $19 billion purchase of aircraft from Boeing.

It would help create 235,000 U.S. jobs, in addition to the half-million U.S. jobs already generated by the U.S. annual $100 billion in exports to China, he said.

"We also think that China’s rise offers enormous economic opportunity. We want to sell you all kinds of stuff," Obama said, drawing laughter from the audience. "We want to sell you planes. We want to sell you cars.  We want to sell you software."



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