01/17/2011, 00.00
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Hu Jintao provoking the US by suggesting yuan replace dollar as reference currency

Before leaving for Chicago, the Chinese president gives a rare interview to US newspapers, explaining his views on the economy, international politics and human rights. His answers show that he is unwilling to make any political and economic concessions. Now everyone is waiting to see how President Obama will respond.

Beijing (AsiaNews/Agencies) – Chinese President Hu Jintao called for an end to a "zero sum" cold war relationship with the United States and proposed new co-operation, but refused to appreciate the yuan. He called instead for a new international currency system.

Hu, who will start a US visit tomorrow, chose to outline his views in an interview with two US newspapers, the Wall Street Journal and the Washington Post.

On the currency issue, he said China would not comply with Washington’s request. For the United States, the Chinese currency is undervalued, a situation that is giving China an unfair price advantage in international trade, contributing to the huge US trade deficit. Beijing has rejected US demands to protect its production and jobs.

For the United States, it would be better for China to let its currency strengthen to cap inflation, but Hu said China is fighting inflation with a range of policies including interest-rate increases. What is more, “inflation can hardly be the main factor in determining the exchange rate policy,” he explained. In fact, prices are “on the whole moderate and controllable.”  Many analysts are not so sure, noting how prices are skyrocketing whilst China’s real estate bubble is still growing.

Hu has his own advice for the Americans. The “liquidity of the US dollar should be kept at a reasonable and stable level," he said.

The Federal Reserve's November decision to buy US$ 600 billion in US government bonds was a bad idea because it undermined the value of the US currency and could cause competitive currency devaluations by other governments, especially in emerging economies.

For Hu, the international currency system dominated by the US dollar is a "product of the past". For this reason, China was taking steps to replace it with the yuan, its own currency. Hu acknowledged though that it would be a "fairly long process".

China, with foreign exchange reserves of US.85 trillion, is the largest holder of US debt.

The Chinese president suggested co-operation with the United States in areas like new energy sources, clean energy, infrastructure development, aviation and space, namely areas in which China lags behind the United States but in which it is mounting a competitive challenge.

In addition, he spoke encouragingly about the outlook for resolving tensions on the Korean Peninsula. However, as North Korea’s main ally, Beijing has done little to stop escalating tensions in the wake of Pyongyang’s military actions against South Korea.

On the eve of Hu’s visit, US President Barack Obama appears poised to raise the issue about human rights, which had been on backburner for a while. Last Thursday, the US leader met some China human rights advocates at the White House, activists seen as criminals by China.

On the matter, Beijing has already said that it would not accept any interference in its domestic affairs, calling such talk a leftover from the “cold war”, showing a lack of “mutual respect”.

Beijing also said that China does not discriminate against foreign companies and wants the “same treatment” for Chinese companies and goods, indirectly responding to those who criticise Western governments for basing their relations with China on business and not human rights.

Analysts note that China also appears unwilling to make any concessions to US demands, but will insist on issues it considers vital like US arms sales to Taiwan, or the South China Sea, which it views as an internal sea. Washington has instead strengthened its presence in the region to support South Korea and back the territorial claims of Japan and Vietnam against China.

Experts note that China’s offer to buy the sovereign debt of struggling European nations could open a privileged channel with Europe, moving Beijing away from its focus on the United States alone.

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