Friday, May 4, 2012 - 07:47

US Geithner: China Agrees Reforms That Will Lead To Yuan Rise

BEIJING (MNI) - U.S. Treasury Secretary Timothy Geithner said Friday that the U.S. and Chinese governments have agreed on a number of economic and financial reforms which will lead to more yuan appreciation over time and help China towards its long-stated goal of rebalancing its economy by boosting consumption and cutting its reliance on exports.

In a statement concluding the fourth round of the Strategic & Economic Dialogue, the Treasury Secretary cited "significant progress" in the bilateral economic relationship since the Obama Administration took office, including noting that the Chinese currency has "significantly appreciated" in that time.

He also noted recent steps taken by China, including reduced interventions in the domestic currency market, increased yuan internationalization, the widening of the yuan's daily trading band against the dollar, and capital account reform.

"These steps are significant and promising and, we believe, will lead to further appreciation in the exchange rate over time against the dollar and the other major currencies," he said.

Later, in a U.S. delegation press conference, Geithner again cited progress made by China in recent year, including: a 13% rise in the real yuan exchange rate in last 22 months; the widening of the yuan's daily trading band, a "significant reduction" in Chinese foreign exchange market intervention; a "very substantial" decline in the Chinese current account and trade surpluses, and a reduction in capital controls.

Never, the U.S. and other developed nations believe that the yuan "must appreciate further" against the dollar and other major currencies, Geithner said.

A joint statement issued at the end of the talks reiterated China's commitment to continuing exchange rate reform, including allowing for greater currency flexibility.

The statement outlined a number of broad macroeconomic and industry-specific agreements between the world's second and largest economies, including confirmation that China will raise the cap on foreign stakes in securities joint ventures to 49% from 33% now.

Vice-Premier Wang Qishan, who led the economic track of the talks on the Chinese side, said "ensuring the recovery of growth and job creation is still our primary task."

Some of the agreements outlined today had already been announced: China reiterated plans to boost imports by lowering tariffs and import taxes on items such as consumer goods and to increase the amount of foreign money permitted to invested in the domestic markets through the Qualified Foreign Financial Institute (QFII) scheme.

In other areas, the two sides acknowledged discussion and broad agreement on long-standing issues, without providing any concrete details of progress. The joint statement said that China will steadily increase the dividend payout of its state-owned firms, something that the U.S. had called for, arguing that this will help reduce savings and boost consumption.

Conversely, the United States said it will facilitate the export of civilian high-tech goods, but the statement failed to outline any specific steps to dismantle the controls on military capable technology imposed following the Tiananmen crisis in 1989.

Wang mentioned that the U.S. agreed to support the inclusion of the yuan in the basket used to value the International Monetary Fund's Special Drawing Right, though the joint statement indicated that this is subject to the yuan meeting the inclusion criteria.

A year ago, Geithner outlined three criteria that China must meet for the yuan to be included in the SDR basket: a free floating exchange rate; an independent central bank, and free flow of capital into and out of the country. ** MNI Beijing Newsroom: 86-10-8532-5998 **

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