China defends currency policy

Wen Jiabao rejects calls for yuan appreciation and blames US for worsening ties.

    Wen did not directly answer questions about Google or China's prosecution of Rio Tinito executives [AFP]

    Washington and other trading partners have for years pressed Beijing to ease currency controls which they say keep the yuan undervalued and so give Chinese exporters an unfair price advantage.

    Beijing tied the yuan to the dollar for decades, but broke that link in 2005 and allowed it to rise by about 20 per cent through late 2008.

    US-China ties

    Analysts expect Beijing to let the yuan rise against the dollar some time this year, but they foresee a gradual increase of no more than five per cent this year, which would not produce dramatic changes in the US and European trade deficits.

    Those pushing for a re-valuation of the yuan highlight the fact that a stronger currency could help Beijing achieve its goal of making the economy more self-sustaining by boosting consumer buying power and reducing reliance on exports and investment.

    "The responsibility for the serious disruption in US-China ties does not lie with the Chinese side but with the US"

    Wen Jiabao,
    China's prime minister

    Currency policy has been a sticking point between China and the US for years, with many US legislators complaining that China's currency is undervalued by as much as 40 per cent.

    Other disputes between the two powers include Chinese internet controls, new US weapons sales to Taiwan and a meeting between the Dalai Lama, the exiled Tibetan Buddhist leader, and Barack Obama, the US president.

    Beijing regards Taiwan as a breakaway province, to be united by force if necessary, and accuses the Dalai Lama of being a dangerous separatist.

    Asked about these tensions between China and the US, Wen said: "The responsibility for the serious disruption in US-China ties does not lie with the Chinese side but with the US."

    But Wen did not directly answer questions about search engine giant Google, which has threatened to pull out of China following a hacking attack if it cannot offer an uncensored Chinese-language search engine.

    He also did not directly answer questions about mining giant Rio Tinto, four of whose employees face trial in Shanghai on charges of accepting bribes.

    Inflationary pressure

    While Wen's news conference was dominated by economic issues, in its parliament session China's ruling Communist Party has focused on plans to raise welfare spending for farmers and China's poor.

    "So much of the focus has been on the economy as it relates to the global financial situation, but of course for Chinese here, they are looking at domestic issues," Melissa Chan, Al Jazeera's correspondent in Beijing, said.

    "Inflation - depending on where you are in the country - is rising quite rapidly and there is a lot of concern in China among the public about the real estate bubble, with people saying something has to give this year."

    China escaped the worst of the global slump by ramping up credit, slashing interest rates and launching an infrastructure stimulus programme in late 2008, valued at the equivalent of $585bn.

    But while the Chinese economy grew 8.7 per cent last year as a result - by far the fastest pace of any major country - price increases followed in the wake of that burst of spending and easy credit.

    Victor Gao, the director of the government-affiliated China National Association of International Studies, said that the global financial crisis had also brought China "to a cross roads" in terms of its development.

    "We need to make major transformation from export led economy to export-plus-domestic demand, from traditional development, which is very heavy on consumption of raw materials and energy, to green development," he told Al Jazeera.

    "Also [we need to] change from the original mould, where the focus is always on the urban area, to urban-plus-rural development."

    SOURCE: Al Jazeera and agencies


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