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Why Europe, US have different yuan takes
Source: Xinhua |
April 8, 2010, Thursday
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Print Edition
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WHILE the United States is pushing China hard to appreciate its currency, the European Union appears in no hurry to follow Washington's suit since Brussels has more to weigh up.
In a new round of an offensive against China's currency policy, a group of US congressmen has threatened Beijing by calling on the White House to label China a currency manipulator and to impose trade sanctions on China, alleging an undervalued yuan gave an unfair advantage to Chinese exporters and contributed to trade deficits between the two trading partners.
China has rejected the accusation, insisting its currency was not undervalued and a stronger yuan would not redress US-China trade imbalance. So far, the EU has kept a low profile.
EU Trade Commissioner Karel De Gucht, who is going to visit China later this month, is one of the few high-ranking officials in Brussels who recently joined the debate on China's currency policy. He did voice support for a stronger yuan, but disagreed with the approach of some in the US who want to press China with trade sanctions. "We have issues to discuss with them (Chinese officials), but I would not speak of a generalized conflict situation," De Gucht told the Financial Times.
Jean Pisani-Ferry, director of the Brussels-based economic think tank Bruegel, said in an interview with Xinhua that the transatlantic divergence implied that the EU and the United States might have different stakes in the issue.
"The EU is not in the same camp with the US. In a number of dimensions, it is in a similar situation as the US, but in other dimensions, it is not," he said.
For the EU, it is not simply the appreciation of the yuan against the US dollar or the euro. An additional concern is the evolution of the exchange rate between the euro and the US dollar. "Traditionally, France is more vocal about the US dollar exchange rate because of its specializing in aerospace and the implications of the dollar-euro exchange rate for Airbus versus Boeing," Pisani-Ferry said.
If China is forced to appreciate its currency against the US dollar, Beijing may consider diversifying its foreign reserves and turn to stronger euro assets, which would push up the exchange rate of the euro against the US dollar.
Pisani-Ferry said that in the short term, if the yuan kept its link with the US dollar and China accumulates its dollar reserves, it would help contain the depreciation of the dollar against the euro. But that would not be sustainable in the medium and long term, so a well-managed transition to a new yuanexchange-rate regime was preferable for the EU, he said.
"Europeans at the same time do not want to see China diversify into the euro, which could have major implications for the euro-dollar exchange rate and would send a signal that the euro was on a fast appreciation track. All that is very delicate, but I think the good way of approaching it is to develop the discussion on the medium term and then to manage the transition," he said.
The EU's lack of institutional link between currency and trade issues may be another reason for the 27-nation bloc being less vocal on the appreciation of the yuan than the United States.
"In Europe we have a more separated decision-making system," Pisani-Ferry said. "We have exchange rate issues that are the responsibility of the European Central Bank and the ministers of finance, and we have trade responsibility of the European Commission. There is no institutional link between the two, while in the US, the Congress can actually create the link between exchange rate and trade policy."
In addition, the EU is overall in a trade balance, despite its large deficits with China, which makes it less obsessed with the appreciation of yuan than Washington, which has run high deficits in trade with others for years. "In the US, it is easy to say we have a deficit, and then look at who is responsible for the deficit. China accounts for a large part of it. In Europe there is no concern about deficits in general," Pisani-Ferry said.
Currently, the Greek debt crisis in effect brought about a by-product - causing the euro to fall by about 10 percent against the dollar since November and shed about 8 percent versus the yuan since January this year. This has allowed European exporters feel quite comfortable, so there is no urgent need for any further abrupt move of the yuan.
(Xinhua)
In a new round of an offensive against China's currency policy, a group of US congressmen has threatened Beijing by calling on the White House to label China a currency manipulator and to impose trade sanctions on China, alleging an undervalued yuan gave an unfair advantage to Chinese exporters and contributed to trade deficits between the two trading partners.
China has rejected the accusation, insisting its currency was not undervalued and a stronger yuan would not redress US-China trade imbalance. So far, the EU has kept a low profile.
EU Trade Commissioner Karel De Gucht, who is going to visit China later this month, is one of the few high-ranking officials in Brussels who recently joined the debate on China's currency policy. He did voice support for a stronger yuan, but disagreed with the approach of some in the US who want to press China with trade sanctions. "We have issues to discuss with them (Chinese officials), but I would not speak of a generalized conflict situation," De Gucht told the Financial Times.
Jean Pisani-Ferry, director of the Brussels-based economic think tank Bruegel, said in an interview with Xinhua that the transatlantic divergence implied that the EU and the United States might have different stakes in the issue.
"The EU is not in the same camp with the US. In a number of dimensions, it is in a similar situation as the US, but in other dimensions, it is not," he said.
For the EU, it is not simply the appreciation of the yuan against the US dollar or the euro. An additional concern is the evolution of the exchange rate between the euro and the US dollar. "Traditionally, France is more vocal about the US dollar exchange rate because of its specializing in aerospace and the implications of the dollar-euro exchange rate for Airbus versus Boeing," Pisani-Ferry said.
If China is forced to appreciate its currency against the US dollar, Beijing may consider diversifying its foreign reserves and turn to stronger euro assets, which would push up the exchange rate of the euro against the US dollar.
Pisani-Ferry said that in the short term, if the yuan kept its link with the US dollar and China accumulates its dollar reserves, it would help contain the depreciation of the dollar against the euro. But that would not be sustainable in the medium and long term, so a well-managed transition to a new yuanexchange-rate regime was preferable for the EU, he said.
"Europeans at the same time do not want to see China diversify into the euro, which could have major implications for the euro-dollar exchange rate and would send a signal that the euro was on a fast appreciation track. All that is very delicate, but I think the good way of approaching it is to develop the discussion on the medium term and then to manage the transition," he said.
The EU's lack of institutional link between currency and trade issues may be another reason for the 27-nation bloc being less vocal on the appreciation of the yuan than the United States.
"In Europe we have a more separated decision-making system," Pisani-Ferry said. "We have exchange rate issues that are the responsibility of the European Central Bank and the ministers of finance, and we have trade responsibility of the European Commission. There is no institutional link between the two, while in the US, the Congress can actually create the link between exchange rate and trade policy."
In addition, the EU is overall in a trade balance, despite its large deficits with China, which makes it less obsessed with the appreciation of yuan than Washington, which has run high deficits in trade with others for years. "In the US, it is easy to say we have a deficit, and then look at who is responsible for the deficit. China accounts for a large part of it. In Europe there is no concern about deficits in general," Pisani-Ferry said.
Currently, the Greek debt crisis in effect brought about a by-product - causing the euro to fall by about 10 percent against the dollar since November and shed about 8 percent versus the yuan since January this year. This has allowed European exporters feel quite comfortable, so there is no urgent need for any further abrupt move of the yuan.
(Xinhua)
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