After years of grabbing the spotlight in Sino-U.S. economic relations, U.S. concerns over the valuation of Chinese currency, or renminbi (RMB), are expected to fade as the International Monetary Fund has declared that RMB is no longer undervalued, U.S. experts said.
It's "very important" that the IMF has concluded Chinese currency is "no longer undervalued", David Dollar, a senior fellow at the Brookings Institution, a U.S. think tank, told Xinhua in an interview on Tuesday. "I think a multilateral institution like the IMF is more likely to have an objective view." The IMF formally changed its view of the RMB exchange rate after the just-concluded Article IV Consultation with China, an annual economic and financial check-up between the IMF and its member countries. "While undervaluation of the renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued," David Lipton, first deputy managing director of the Washington-based organization, said Tuesday at a press conference in Beijing.
"The People's Bank of China (PBOC) has not intervened in the currency market for a long time," which indicated that the RMB exchange rate is at a "proper" level suggested by market fundamentals, echoed Dollar, who served as the U.S. Treasury Department's economic and financial emissary to China from 2009 to 2013. "My own sense is that the exchange rate issue is receded as an important issue," Dollar said, noting that China has made a lot of progress in its market-determined exchange rate reform. "I would encourage the U.S. side to focus on the market access issues", which are more important than currency issues, during the upcoming annual meetings of China-U.S. Strategic and Economic Dialogue (S'ED) scheduled for next month, he added. However, the U.S. Treasury maintained a view that Chinese currency remains "significantly undervalued" in its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies released in April, despite the fact that the RMB has risen sharply against many currencies in recent months.
Adam Posen, president of Peterson Institute for International Economics (PIIE), another U.S. think tank, believed the U.S. Treasury's accusation against Chinese currency is not justified because China's current account surplus has declined sharply and the country has stopped intervening foreign exchange markets. China's current account surplus, the broadest measure of its trade with the rest of the world, has fallen from a peak of about 10 percent of its GDP in 2007 to about 2 percent of its GDP in 2014, and China's foreign exchange reserves have fallen to 3.84 trillion U.S. dollars by the end of last year from a peak of 3.99 trillion dollars, which suggested the central bank was not intervening in foreign exchange markets. Nicholas Lardy, a senior fellow at the PIIE and a leading expert on China's economy, said the U.S. Treasury's view seems to be based on the presumption that China "should have a deficit in its trade with the rest of the world" as an emerging market economy.
The U.S. Treasury's goal is "not to get China's current account surplus to a small number, but to get China's current account to a significant deficit", which would push up the RMB exchange rate quite a bit, Lardy told Xinhua at a press briefing earlier this month. But "that's not the right framework" to look at the RMB exchange rate, because China has an extremely high national saving rate and it's not going to be a capital importer, argued Lardy, who believed Chinese currency is approaching the "equilibrium value" despite the government's current control on capital movements. Lardy said the currency issue will be discussed during the China-U.S. S'ED talks, because there are still some congressional concerns about currency manipulation and some lawmakers have proposed to add enforceable currency provisions into trade legislations.
The President Obama administration "has to say something and do something" against currency manipulation, but "I don't think it will be a top priority," said Lardy. "I think the focus will be more on the bilateral investment treaty and other issues." Tony Fratto, a partner at Hamilton Place Strategies and deputy White House press secretary to former U.S. President George W. Bush, said at a panel discussion last month that currency manipulation issues "become less and less important" as major economies have recognized the benefits of more flexible currency and significant costs associated with using currency as a tool to expand trade. Dollar said "there's no chance" that the legislation addressing currency manipulation would be enacted because he is skeptical that both Houses of Congress would pass the legislation, and U.S. President Obama could veto it if passed by full Congress.
"Those provisions would undermine our international efforts to address this issue, raise highly problematic questions about consistency with our international obligations, lead to other countries pursuing retaliatory measures that could hurt our exporters," the White House recently said in a statement regarding the currency legislation. In recent years, both the House and Senate have passed separate bills to use the countervailing duty process to address currency undervaluation, but neither has reached Obama's desk to sign into law. The IMF's latest view on Chinese currency would make it more difficult for Washington to continue to argue that the RMB is significantly undervalued and press China to boost its value of the currency. In fact, the Obama administration has shifted its attention to issues such as increased market access for U.S. businesses operating in China, and better protection of intellectual property rights, as the RMB exchange rate has not become the primary concern of U.S. companies.
"The impact of China's exchange rate value on company competitiveness ranks near the bottom of company concerns once again," the U.S.-China Business Council said in its 2014 China Business Environment Survey. "While the currency topic is one that periodically gets a great deal of attention on Capitol Hill, it is yesterday's problem, not today's." "I think in practice there will be a lot of discussions about trying to move more quickly on the bilateral investment treaty that would require China to open a lot of sectors for investment," Dollar said of the upcoming China-U.S. S'ED talks. Both the Chinese and U.S. governments have expressed intentions to conclude the negotiations of bilateral investment treaty under current administration, as the investment treaty has become a top priority for bilateral economic relations.
Talks on the investment treaty began in 2008 as both countries sought to increase mutual investment, which only accounted for a tiny share of their overseas investment. The treaty is expected to cement the foundation of China-U.S. economic ties and significantly benefit global economy.
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