FORCING BEIJING to revalue its currency would lead to a “disaster for the world”, Wen Jiabao, China’s premier, has warned amid increasing tensions over efforts by governments and central banks to hold down their exchange rates.
Speaking in Brussels, Mr Wen hit back at international criticism of China’s currency policy, saying that acceding to demands for a faster rise in the renminbi could cause social unrest in China.
“Do not work to pressurise us on the renminbi rate,” Mr Wen said, departing from prepared remarks.
He said Chinese export companies had very small profit margins, which could be wiped out by actions such as the currency import tariffs the US Congress is threatening to impose.
“Many of our exporting companies would have to close down, migrant workers would have to return to their villages,” Mr Wen said.
“If China saw social and economic turbulence, then it would be a disaster for the world.”
Mr Wen’s comments come a day after a trio of top European Union officials, including Jean-Claude Juncker, chairman of the euro zone group of finance ministers, were politely rebuffed when they asked China to allow the renminbi to appreciate faster.
With fears rising about a global currency war, government and central bank officials across emerging Asia are contemplating more intervention to hold down their exchange rates.
Tim Geithner, US Treasury secretary, said that intervention was contagious.
“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same,” he told a conference in Washington. In June, Beijing ended a two-year period of intervening in the currency markets to re-peg the value of the renminbi against the dollar, and allowed it to resume appreciating.
However, since then it has risen by only just over 2 per cent against the dollar, and has fallen more than 9 per cent against the euro.
Mr Wen said a gradual appreciation was already under way and that “we are going to proceed with the reforms”, but China has refused to give a guarantee about how quickly the currency will rise.
Upward pressure on emerging Asian currencies against the dollar, euro and renminbi has triggered increasing talk of official action.
Thai and Indian central bank officials have been the most aggressive, voicing complaints that significant inflows of western funds are pushing up currencies and, in India’s case, fuelling inflation.
The Thai baht and Indian rupee strengthened yesterday in spite of suggestions by Wongwatoo Potirat, director of the Bank of Thailand, and Subir Gokarn, deputy governor of the Reserve Bank of India, that action to curb appreciation pressures might be imminent.
Mr Wongwatoo said the Thai central bank was considering restrictions on fund flows to try to manage the baht, while Mr Gokarn said the Reserve Bank of India was looking at ways to deal with the “potential threat” of inward capital flows.
Although exchange-rate policy has boiled over into a heated political issue in the US, where it has been blamed for a yawning trade deficit and high unemployment, it has been less of a concern in Europe, which still enjoys a trade surplus. – (Copyright The Financial Times Limited 2010)
