On the defensive

In recent years, China trips by US Treasury Secretaries have followed a familiar pattern. Before releasing their grip on the secretary’s diplomatic passport, hawkish congressmen would impart a stern lecture to the secretary on the evils of China’s currency policy and the need for rapid renminbi appreciation. The secretary then passed on these sentiments in more polite terms to his Chinese hosts, who in turn told him to go to hell (in equally polite terms of course). The global economic crisis has inevitably altered the negotiating situation. The current US Treasury Secretary Timothy Geithner arrived in Beijing at the weekend on the defensive, keen to appease China’s concerns that the value of its US dollar holdings are under threat due to America’s newfound penchant for issuing mountains of new sovereign debt in order to weather the economic storm. Naturally, Geithner wants to talk about the renminbi and China’s efforts to boost domestic consumption, but does he have the initiative? Geithner can perhaps find encouragment in continued manufacturing expansion in China, which CLSA attributes in part to robust domestic demand. Plenty of Chinese cash is already being spent in Taiwan, with the first of a host of industrial procurement delegations touching down in Taipei at the weekend. And a more rational approach to fuel pricing (prices are up again as China slowly unwinds gas station price caps) is much-needed, and market-oriented, reform. These are praise-worthy efforts, but they won’t shift the renminbi off the negotiating table. A stronger currency is integral to any movement away from exports toward consumption-led growth.