March 14, 2010 8:15 am

China hits at currency ‘protectionism’

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Wen Jiabao, Chinese premier, has warned other countries that pressing China on currency policy amounts to protectionism and insists that the renminbi was not undervalued.

The National People’s Congress closes in Beijing with a report by Premier Wen Jiabao calling for measures to heal social rifts in the country.

Mr Wen said on Sunday that China would continue to reform its currency system. But he pushed back strongly against international pressure on the level of the exchange rate, which is becoming a flashpoint in relations with the US.

Speaking at the end of the National People’s Congress, he added that China was still “very concerned” about the safety of its US dollar investments.

“The Chinese currency is not undervalued,” Mr Wen said at the closing of the annual meeting of the Chinese legislature. “We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies.”

Mr Wen said he understood that countries wanted to increase exports but said they should not resort to what he described as protectionism.

“What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.

China’s currency has been in effect pegged to the US dollar since mid-2008, which Beijing argues brought stability to the international economy during the financial crisis.

However, international pressure on China to strengthen the renminbi is rising, especially from the US where the Treasury department must decide by mid-April whether to label China a “currency manipulator”.

Although there is little direct consequence from accusing another country of manipulating its currency, analysts say such a move could lead to the US imposing trade sanctions.

Mr Wen pointed out that about half of China’s exports were processing trade – where imported components are assembled at factories in China – and 60 per cent were made by foreign companies or joint ventures with a foreign partner.

“If you restrict trade with China, you are hurting your own countries’ firms,” he said.

Mr Wen caused a stir last year when he expressed concern for the safety of China’s vast holdings of US government debt. “We are very concerned about the lack of stability in the US dollar. I was worried last year . . . I am still worried this year.”

Mr Wen said he hoped Washington would take “concrete steps to reassure international investors” since the government guarantees US sovereign debt.

Mr Wen pinned the blame for the recent friction with the US on Washington. He said the tensions were due to Mr Obama’s decisions to sell arms to Taiwan and to meet the Dalai Lama.

“The responsibility does not lie with the Chinese side but with the United States,” he said. “We hope the US will face the issue squarely ... so as to restore and improve China-US relations.”

Although inflation was under control at the moment, Mr Wen warned that high prices would represent a significant threat to the Communist party.

“If there is inflation, plus unfair income distribution and corruption, that could be strong enough to affect social stability and even the consolidation of state power,” he said.

The Chinese premier also responded to criticism of China’s actions at the recent Copenhagen climate change summit. He defended his much-criticised decision to send a junior minister to a meeting which included Barack Obama, US president.

Mr Wen said the Chinese delegation had not been informed about the meeting and only found out about it from another government.

“So far no one has given us any explanation of this, and it is still a mystery to me,” Mr Wen said of the alleged snub. 

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