China Rebuffs Japan's `Unreasonable' Yuan Exchange-Rate Policy Criticism
By Bloomberg News - Oct 15, 2010 5:08 AM ET
China rebuffed Japan’s calls for it to make its exchange rate more flexible, signaling increased tension among Asia’s largest economies on currencies.
It’s “unreasonable” for Japan to criticize China on the value of the yuan considering its trade surpluses with China, Yao Jian, spokesman for China’s Ministry of Commerce, said at a briefing in Beijing today. “China has been acting responsibly on currency policies.”
The official’s comments come after South Korea also rebuked Japan yesterday for criticizing its foreign exchange policy. Finance ministers and central bank governors of the Group of 20 nations are due to meet next week in South Korea, and competitive devaluation is expected to be a major topic, Japanese Finance Minister Yoshihiko Noda said this week.
“Currency tension is growing in Asia as many nations enjoy current account surpluses -- no one wants to be a scapegoat,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. “These comments by China and South Korea serve as a warning to Japan before the G-20.”
Japan’s Prime Minister Naoto Kan said two days ago that guiding currencies lower is against the “coordination process” of the G-20. “We’d like South Korea and China to take responsible actions according to the common rules,” he said.
China Trade
Yao said that Japan has been posting trade surpluses with China for eight years between 2003 and 2010. Japan uses a different calculation method for the trade figures, and Ministry of Finance data show it has been running trade deficits with China since at least 1997.
Addressing another area of tension with trading partners, China’s Yao also said today the country’s restrictions on the exports and manufacturing of rare-earth minerals are in line with World Trade Organization policy.
U.S. and European policy makers have criticized Asian governments for holding down their currencies to aid exports, while emerging economies have complained about near-zero interest rates in the U.S. leading to capital flooding their markets. U.S. Treasury Secretary Timothy F. Geithner renewed his call for China to let its currency rise in a speech last week to the International Monetary Fund.
Scapegoat
Yao said the yuan shouldn’t be a scapegoat for American economic and unemployment problems, speaking a day after the U.S. reported a record trade deficit with China. China’s exports to the U.S. climbed to a record $35.3 billion, while U.S. exports dipped to $7.3 billion, the Commerce Department said.
Other countries shouldn’t judge what is an appropriate level for China’s trade surplus, Yao said, noting that the country’s current-account surplus is about 5 percent of gross domestic product this year, a level he termed appropriate.
China will continue with yuan reform as a responsible nation, Yao said. Yuan policy is for China’s own decision based on the domestic economic situation, he said.
China’s currency has risen 2.7 percent against the dollar since June 19, when the central bank said it would pursue a more flexible exchange rate after blocking appreciation for almost two years.
Financial Cooperation
Japan’s Noda today called on G-20 nations to strengthen cooperation on financial markets when they meet in South Korea next week.
“We have to cooperate and share our wisdom to strengthen order in the global currency system” at the gathering, Yoshihiko Noda said at a press conference in Tokyo today. “We have to make the most of the wisdom of each nation as it’s hard for one country to address currency issues.”
Yao signaled that China doesn’t want to repeat Japan’s experiences dealing with a strengthening domestic currency after the Plaza Accord in 1985. The agreement prompted a decline in the dollar against its Japanese and German counterparts, with the U.S. currency weakening about 38 percent against the yen in two years.
‘Lecture Us’
“If we recall Japan’s economic policies in the 1980s, many scholars and economists have said that led to economic disorder and it’s a lesson to take,” Yao said. “Japan’s rapid currency appreciation led exports to plunge, as well as unemployment and an economic slowdown. The subsequent policy loosening led to economic bubbles in the decade that followed.”
“After those lessons, how could Japan lecture us?”
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