China is starting to get the hang of this global governance game.
This story, based on comments to journalists from a "senior Chinese government official," created a stir Thursday.
It's interesting to see China take up the public relations tactics of the older powers. The Group of Seven countries position themselves ahead of summits like this all the time. These "senior officials" tend to be civil servants who are close enough to the talks to be able speak about the issues authoritatively. Their identities are concealed in order to keep anything that might be attributed to them from affecting negotiations. The cover of anonymity allows government officials to frame the debate by influencing public expectations. Reporters agree to these conditions because otherwise they would have little insight at all into what is going on. You should treat these stories the same way you would treat a press release.
So here's China's press release to its negotiating partners ahead of next week's Group of 20 summit: Remember how well we were all getting along once President Barack Obama got Congress to stop yelling at us all the time? Let's keep that up and maybe we'll get somewhere.
"If we allow the G20 to turn into a process of finger-pointing, then it will certainly send out a very confusing and misleading signal to the markets and to the general public," the Chinese official told reporters, according to Reuters.
For years, the U.S., driven by lawmakers, sought to bully China into loosening controls on its currency, the yuan. More recently, Treasury Secretary Timothy Geithner has been trying a different tactic. Rather than make the yuan an issue between the existing superpower and the emerging superpower, he has sought to defuse the tension by addressing China's currency through the G20 effort to co-ordinate domestic economic policies to achieve sustainable growth. Most China watchers agreed that this approach was working, especially because officials from countries such as Brazil and Mexico were taking up the American cause.
Many academics and economists thought China would have allowed the yuan to rise by now. Wendy Dobson, the Rotman School of Management professor and former Canadian finance official who wrote Gravity Shift: How Asia's New Economic Powerhouses Will Shape the 21st Century, said in an interview in April that an appreciation of the yuan was likely within the next couple of months.
The problem is Europe. China, like everyone else, was spooked by the prospect of another global credit crunch. The same way Europe's debt crisis likely will cause the U.S. Federal Reserve to push back its eventual interest-rate increase, China's economic managers have opted to delay their move to a higher exchange rate, which would hurt the exporters that help bring social peace to one of the world's most populous countries by employing tens of millions of people.
China's delay is irritating many of its peers, including Canada, where Bank of Canada Governor Mark Carney alluded in a speech this week that Chinese officials are putting off the inevitable. U.S. lawmakers are threatening anew to pass legislation that would punish Chinese imports unless President Hu Jintao's government changes its currency policy.
China is alternately portrayed as mercantilist or simply stubborn, in the Western media. The country's arguments against raising its exchange rate are given much less attention. It could be spin, but the government argues that it did the world economy a favour by freezing its exchange rate during the financial crisis. Mr. Hu's government says the move brought stability to the fastest growing major economy and the one the U.S. and others are now counting on to lead the recovery.
Rather than stubborn, what if China is simply patient?
Justin Lin, the World Bank chief economist on loan from Peking University, observed Thursday at an event hosted by the Carnegie Endowment for International Peace in Washington that preliminary research suggests nations with bigger reserves and smaller debt were able to withstand the crisis better than most. This was the case in China, no doubt emboldening Beijing's policy makers.
Mr. Lin declined an opportunity to comment on China's exchange-rate regime directly. However, he did say that the trade imbalances that so enrage Western politicians and manufacturers are slowly being reset by natural economic forces. As dynamic developing nations become more productive, wages rise, making the products they make more expensive and reducing exports. All this is now happening in China, Mr. Lin said.
"That should be favourable for the global balance," Mr. Lin said.
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