Chinese currency
Interview: Gene Sperling
>> welcome back. the chinese currency, the won, has been fixed at about 8.27 per u.s. dollar since 1995. this currency peg has enabled the yuan to track the dollar’s decline against the euro/dollar and yen since the start of this year. that makes chinese exports cheaper in europe and japan. former clinton economic advisor, now bloomberg contributor gene sperling’s is back from a trip to shanghai. he talks about the yuan and u.s./china trade. you are in los angeles today after your trip to china. while you were there, was there a lot of talk about the currency situation? what were people saying about it?
>> i was certainly interested. as you know, back in the united states you rarely have not a currency issue get the kind of political attention that the valuation the chinese currency has. i think you found there was not one single opinion. if you look at the government and the exporters you heard a pretty strong defense of the status quo which is that, you know, we’ve got a lot of unemployment, too. our trade surplus with the rest of the world is not particularly large, even if it’s large with the u.s. and third, we are taking a lot of those dollars to finance u.s. debt. when i spoke to shanghai i thought i might be taking the controversial position and offending my hosts by saying that i thought that it had to be higher valued, that it should float with the market, but i didn’t find that much ruckus with my comments. and i think it’s because in shanghai where you have more of the investors, a lot of them are betting that the yuan will be revalued up. so you have a lot of people who have, in the financial world who are not―white house have already placed their bets on a higher valued yuan. so i think you see some different opinions in the financial sector in china versus the export and the government sector.
>> do you actually expect them, though, to allow the currency to move more freely soon?
>> well, you just saw some comments that were pretty big status quo defenses. one, the china semiannual monetary report came out which they talked about things staying steady, though they did suggest something about improving the exchange rate to make it function more supply and demand. but then secretary rubin and others from citigroup were meeting with the premier, and he also came out and gave a pretty strong defense of the status quo. so i think for the next few months we are probably not going to see a lot of change. but lane, there is basically four things they can do. they can stay with the status quo. they could float, which i think is what i would recommend and i think what chairman greenspan and others have recommended, or they could revalue, just pick a different peg. the fourth option is to increase the band. right now it’s a very small band 8.276 to 8.28. they could increase the band slightly by intervening less. i think that’s what they’ll eventually do, but i think those of us in the updates who think that the chinese currency is undervalued, will end up not being satisfied with how wide the new band is; that we might see maybe toward the end of this year.
>> gene, you mentioned chairman greenspan. treasury secretary snow has also commented on the yuan. what actions can the u.s. take if any at all to put any kind of pressure to go one way or the other, or is it simply up to china, there is nothing they can do?
>> there are somegress men who are suggesting taking the wto action against them for manipulating the currency. i think that’s highly unlike limpt i think if i was secretary snow i guess i’d recommend saying to them privately what i guess i said publicly in shanghai, which is we need to play for the long term in u.s. china trade relations. and to do that, china has to show people in the united states that it’s not just a great exporter to the united states, not just a place to outsource, but it is a great potential market for the u.s. and i guess what i would say if i was secretary snow is if you don’t do something like revaluing your currency it’s going to increase the protectionist pressure in the united states, and this is the smart thing to do for long term u.s. china trade relations.
>> you support an open trade policy with china. get into more details about why you believe it’s so important.
>> well, think those of us, and i think from the bush―from both bush administrations, the clinton administration, believe china has to be dealt with. open trade with china we hoped would help push economic reform, push modernizeation. i think that has been true, and china has been open to foreign investment. that is also good. so i think, you know, where we’d like to see more progress is, one, china has not done well enough in terms of encouraging freedom of expression. that has been a disappointment. secondly, they need to really bend over backwards to show they are implementing the w.t.o. and they are being fair, trying to support fair two-way trade if this is going to work in the long run, like a marriage, it’s going to take a lot of constant work, the u.s./china trade relations.
>> from richard nixon to gene sperling’s. thanks very much. china has halted imports of soybeans by some companies, including car gill and archer daniel’s midland in an effort to stem shipments from the u.s. and south america. a brazilian diplomatt in beijing says chinese officials cite safety reasons but they are trying to regulate the flow to cap imports at 15 million tons this year, 3 million less than some forecasts. delays in issuing permits has cause ad backlog of vessels waiting offshore to unload soybeans. imports are forecast to reach $3.5 billion this year. imports have surged along with demand for cooking oil and animal feed. we’ll have the latest on shares of medco health solutions and its first day of trading at the new york stock exchange.
