China says yes to free markets, no to free currency regime

President Barack Obama on his tour to China has approached a very cautious approach. While raising issues of contention between the two nations, he has been subtle in his own right. He agreed to the importance of a stronger China while in a way also asking China to share the burden of being a regional leader.

President Obama today urged Chinese President, Hu Jintao to allow his nation’s currency, Yuan to rise in value following strains over trade between the two economic giants.

US Dollar-Chinese Yuan

Mr. Obama while speaking after a summit in Beijing, made the U.S. expectations public. While voicing the U.S. expectation, that China will let its currency resume its climb against the dollar soon, the U.S. President was cautious to stop short of raising concerns that China is keeping its currency artificially low to boost exports.

He said: “I was pleased to note the Chinese commitment, made in past statements, to move toward a more market-oriented exchange rate over time.

Such action would be welcome in the United States and elsewhere, he hinted: “Doing so based on economic fundamentals would make an essential contribution to the global rebalancing effort.

The Chinese government keeps a tight leash on it’s currency exchange rates. The rates for Yuan (CNY) have moved in a narrow range of 6.78 (August 27′ 09) to 6.86 (July 23′ 09) against the USD, which provides immense trade benefit to Chinese exporters.

With the unemployment rate peaking at a 10.2% level, Obama is also under pressure to ensure protection of domestic industries against Chinese onslaught.

The Chinese President while avoiding any direct reference to the currency issue, conveyed Beijing’s displeasure in a camouflaged fashion at new US tariffs imposed on Chinese-made products including tyres, steel pipes among others.

He said that they needed to “oppose and reject protectionism in all its manifestations” and both sides would need continued “consultations on an equal footing to properly resolve economic and trade frictions“.

The U.S. President is also set to meet the Chinese PM Wen Jiabao, tomorrow where he is likely to discuss the issue of allowing Yuan to appreciate against the US Dollar. IMF MD, Dominique Strauss-Kahn, also raised similar sentiments today in Beijing when he said that a stronger Yuan would be in the interests of China and the world.

Industry analysts also feel that Yuan should be let to move in lines with the forces of demand and supply, a belief which is very unlikely to be echoed in any fashion by the Communist regime in Beijing.

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