| Submit your comments on this article | |
| Home Front: Economy | |
| G20 Focuses on Oil Worries; China, U.S. Discuss Reforms | |
| 2005-10-16 | |
| Downside risks facing the world economy, namely from rising oil prices, dominated weekend discussions among central bankers and finance ministers from industrialized and developing countries, but the relatively quiet front on China's foreign exchange policy didn't signal expectations for the yuan to appreciate will ease. China's currency and financial openness will be the key issues discussed at the U.S.-China Joint Economic Commission, a regular forum for U.S. and Chinese officials to meet and discuss bilateral economic issues. The JEC meeting began Sunday on the heels of the G20 meeting. People's Bank of China governor Zhou Xiaochuan, Chinese Finance Minister Jin Renqing, U.S. Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan are all participating in the talks. Following the end of a two-day meeting of the G20, which includes the U.S., the European Union, as well as China, Brazil and India, the G20 issued the following statement: "We ... emphasized that the risks -- long lasting high and volatile oil prices, widening global imbalances and rising protectionist sentiments -- are to the downside and could exacerbate uncertainties and aggravate global economic and financial vulnerabilities (communique).
The communique made no reference to China's foreign-exchange reform, including only a general determination for G20 members to implement "necessary fiscal, monetary and exchange rate policies, and accelerate structural adjustments' to resolve global imbalances and overcome risks. But delegates talking to Dow Jones Newswires on the sidelines of the main closed-door meetings mostly said they welcomed China's July move to scrap its de facto dollar peg, revaluing the yuan by 2.1% versus the dollar, and instead referencing its value to a basket of currencies. Many said they expected China to allow its currency more flexibility. "Being public on such matters does not simplify things necessarily and can create an abnormal phenomenon of speculation that we never like," said European Central Bank President Jean-Claude Trichet in a briefing Sunday following the meeting's conclusion. "We welcome the recent moves [by China]. We will certainly follow with great attention the future decisions of the Chinese authorities." Canadian Revenue Minister John McCallum, representing Finance Minister Ralph Goodale at the meeting, said Saturday: "China, as a major global player, in the longer run will, I believe, have a more flexible currency." The International Monetary Fund, which along with the World Bank is a member of the G20, also urged China to make the yuan more flexible, with Managing Director Rodrigo de Rato bringing up the issue to Chinese Premier Wen Jiabao in a meeting on Friday. "We see a need for Chinese authorities to give the new exchange rate system the chance to evolve and to produce more results in terms of more flexibility of the Chinese currency," Mr. Rato said during a briefing Saturday. High Oil Prices Could Be Inflationary However, most of the participants focused on the impact high oil prices could have on the global economy and their individual countries. The issue is "complicated," said the People's Bank of China Mr. Zhou. "Certainly if very high prices last for a very, very long time, we will probably see inflation happen in many countries." Saudi Arabian Finance Minister Ibrahim Abdel Aziz Al Assaf said that oil prices are out of line with market fundamentals, and Saudi Arabia is working to help stabilize world oil prices. "The nervousness of oil traders, geopolitical events and natural disasters are all affecting the equation of supply and demand," he said. He said dialogue over high oil prices must include both oil producing and consuming countries, which he said hasn't been the case in the past. "Only when oil prices increase, [major oil consuming countries] want dialogue," he said. "When the prices are low they want to let the market forces work." G20 countries agreed on the need to increase oil production and refining capacity, as well as increase oil investment and they expressed the need to improve the transparency and efficiency of the oil market, based on the communique. China, U.S. Face Off Over Reforms Top U.S. economic officials, led by Messrs. Snow and Greenspan, began talks with their Chinese counterparts Sunday on rancorous economic issues, including Beijing's currency controls and its huge and growing trade surplus. The talks followed a meeting of financial leaders of the world's leading economies that focused on coping with high oil prices and other risks to global growth. U.S. officials said they would press Beijing to move faster on easing controls on the yuan, which critics say is undervalued by as much as 40%, pushing exports higher and contributing to a bilateral trade imbalance that topped $162 billion last year. But they also said they want to expand the dialogue to include a wider range of reforms of its economy and financial markets. Mr. Snow and other officials said they were planning to lobby Beijing to open its financial and other markets wider to foreign firms and to carry out reforms to encourage more domestic demand and reduce the Chinese economy's dependence on exports. Mr. Greenspan, revered in China as an economic mastermind, planned no public comments during his visit, officials said. "If we truly want to deal with these imbalances bilaterally or multilaterally, you need to focus on more than just the currency," U.S. Treasury Undersecretary for International Affairs Tim Adams told reporters. The U.S. Treasury hopes that by putting more emphasis on China's financial reforms, it can call attention to the progress China has made in this area while also encouraging it to open wider to foreign competition. "It does indeed help us to work with Congress to explain the enormity of the reform effort that needs to be undertaken here and how many of these things work together," Mr. Adams said. The U.S. side also planned to present a statement on priorities for building China's financial system that calls for established foreign banks, insurance and securities firms to be eligible to set up multiple branches on the same terms that domestic firms do. Washington also wants China to remove the $10 billion minimum requirement in assets that restricts the ability of foreign institutional investors to buy domestic securities, and to end foreign ownership caps on financial institutions and allow 100% foreign ownership of subsidiaries. "To the extent that China succeeds in building its capital markets, it will increase the size of the Chinese economy and the world economy as well," said Christopher Cox, chairman of the U.S. Securities and Exchange Commission. Mr. Cox said he would seek closer cooperation with China's financial regulators, including initiatives to help train Chinese stock regulators and work together on investigations into market abuses. But U.S. officials said they don't plan to ease pressure on China to allow more currency flexibility. Chinese officials say they cannot move any faster in currency reforms after having revalued the yuan by 2.1% in July, at the same time giving up a decade-old peg to the U.S. dollar and switching to a basket of major currencies that also includes the Japanese yen and euro. The currency has gained only about 0.3% in value since then. Participants said Sunday that the currency issue wasn't raised during the Group of e Group of 20, which included finance ministers and central banks from the richest industrialized countries, as well as big developing nations like China, India and Brazil. But the joint statement issued after the talks included a pledge by all members to "implement necessary fiscal, monetary and exchange rate policies," dismantle trade barriers and resolve imbalances viewed as threats to global economic growth. | |
| Posted by:lotp |
| #2 High oil prices are not inflationary. Only an excessively expansive monetary policy is inflationary. High oil prices may depress economic activity till the economy digests them, but they need not be inflationary. Hard to believe DowJones has reporters who don't know this, but they are probably all English or Poli Sci majors. |
| Posted by: Crish Anginter4176 2005-10-16 12:48 |
| #1 having revalued the yuan by 2.1% in July, at the same time giving up a decade-old peg to the U.S. dollar and switching to a basket of major currencies that also includes the Japanese yen and euro. The currency has gained only about 0.3% in value since then. Weird. US interest rate hikes? |
| Posted by: Shipman 2005-10-16 12:30 |