The presidents of China and the US may have agreed to work together during their November meeting, but on the issue of Beijing’s currency controls, Barack Obama likely flew back to Washington unsatisfied.
Obama and Hu Jintao had been due to discuss renminbi appreciation, and while the US president alluded to it publicly in his closing remarks, Hu’s comments on the matter were notable for their absence.
In the weeks leading up to the talks, China’s central bank had hinted that it was willing to consider other major currencies, not just the dollar, in guiding the renminbi’s exchange rate. It was the clearest indication yet of Beijing’s willingness to resume currency appreciation against the dollar after 18 months of relative stasis. Foreign direct investment surged in October – along with suspected "hot money" inflows – as overseas investors sought to capitalize on the shift.
But officials from the Ministry of Commerce quickly played down the central bank’s statements. It is – as always – a topic the government isn’t comfortable discussing in the open.
Beijing is stuck between a rock and hard place on the subject of exchange controls. It would earn points with the US by allowing the renminbi to appreciate – in Obama’s words, "making an essential contribution to the global rebalancing effort." However, China doesn’t want its export sector to suffer at a time of economic uncertainty. Not to mention that the government is understandably leery of dropping a monetary policy that has served it so well in the past.
Beijing has made concerted efforts to enhance its currency’s global presence. Since the start of the year, billions of renminbi have been committed in currency swaps, foreign central bank provisions, loans and grants associated with commodity contracts, and export credits.
As these efforts progress, the currency may gradually be allowed to trade more freely. For now, though, if Beijing does budge on revaluation, it won’t budge much. China’s increased clout on the world stage as both a commercial market and a source of capital has put it in a strong position to adopt changes on its own terms, according to its internal priorities.
Hu’s silence conveyed the government’s attitude loud and clear: When China does decide to loosen its control over the renminbi it will be when Beijing – not anyone else – is ready.