Geithner's China Visit May Narrow Currency Difference
STEVE INSKEEP, host:
The American Treasury secretary, Timothy Geithner, stopped in Beijing today, on his way home from India. There are signs that China may be willing to let its currency strengthen against the dollar. In theory, at least, that would help cut the U.S. trade deficit, it would raise the prices of Chinese goods that are sold to the United States, lower the prices of American goods sold in China.
NPR's Anthony Kuhn is following the Geithner visit from Beijing. He's on the line. Hi, Anthony.
ANTHONY KUHN: Hi, Steve.
INSKEEP: One wonders why Geithner would stop in China now. Does this suggest that they really are close to a breakthrough?
KUHN: Well, a lot of people think that Geithner is trying to give the Chinese room to do something on this issue. He's taking a very low-key approach. He's not talking to the press. What Treasury spokesmen have said is that he wants some face time with Wang Qishan, who is the Chinese top official on economic and financial issues.
And Wang and Secretary Geithner are going to be meeting in May at Cabinet-level talks, and these would be the talks that would address bigger issues, which could really help on the currency issue and on the bigger trade imbalance. So, he's trying to, I think, set the stage for further talks down the road.
INSKEEP: Well, let's remember: American officials have complained about China's currency for years. The accusation is that China's currency has been kept artificially low, which makes Chinese goods artificially cheap in the United States and hurts the trade deficit. That, at least, is the accusation. And Secretary Geithner, just a few days ago, could have officially accused China of being a currency manipulator, but he didn't.
KUHN: That's right. He's under big pressure from congressmen and industry people to label China a currency manipulator. And if he doesn't want to do that - he deferred a decision on that, which was originally going to be on April 15th - then he has to show that China is moving on this issue.
Now, a problem with the April 15th deadline for this currency manipulator label, is that Chinese President Hu Jintao will be in Washington and he's going to meet with President Obama. And they're going to discuss the issue, and they didn't want to snub him.
Now, when people start accusing China of manipulating currency, China feels backed into a corner and it cannot back down. So, I think Secretary Geithner has been saying, well, it's in China's interest to do this anyway and it's ultimately China's choice. He knows that people inside China, including, for example, at China's Central Bank, are pushing for this currency appreciation. So, I think he's trying to give them some room to do that.
INSKEEP: Why would the Chinese push for a currency appreciation if they seem to be gaining so much from a cheap currency?
KUHN: Well, they're, you know, the opponents of it, for example, are in the commerce ministry. They're afraid that if Chinese exports get more expensive people will be thrown out of work. But in the Central Bank, for example, they're worried about monetary policy. They're worried about hot money inflows, betting that the Chinese currency will go up.
So, China has said that in the long run, for sure, the Chinese currency is going to get stronger against the dollar; they just don't want it to happen all at once. Now, we've been seeing some signs that China is going to move on this fairly soon. What's most likely, analysts say, is that China will allow the renminbi, the Chinese currency, to trade within a wider band.
INSKEEP: Which means they're still controlling it, but maybe not quite so strictly?
KUHN: That's right. There would be a small appreciation and there will be wider play for market forces.
INSKEEP: But not totally free market. You wonder if this really will help the deficit in a couple of seconds - the trade deficit.
KUHN: Well, that requires a larger rebalancing of consumption and production in both countries, and that takes big changes for both countries. It's not easy.
INSKEEP: Okay, Anthony. Thanks very much. That's NPR's Anthony Kuhn reporting today, from Beijing.