Although oil prices dominated the summit agenda, discussions were held between US and Chinese officials towards the end of official proceedings, and US Treasury Secretary John Snow emerged with the conviction that China has "a real, genuine commitment" to reform.
During the course of his visit, Snow shifted his focus away from the yuan and called for the wholesale opening up of China's financial sector to foreign competition. He advocated dropping foreign ownership caps for investment banks and funds management operations and removing barriers on overseas investment in locally traded shares as a means of deepening capital markets and in turn boosting consumption.
While these measures could form the platform for a more flexible currency, appreciation of the yuan remains the bottom line for a US Congress concerned by America's widening trade deficit with China.
The yuan has been allowed to appreciate just 2.1% on the dollar in a managed float against a basket of currencies. Such a small revaluation means little to the US economy in practical terms, prompting officials to call on Beijing to turn its initial political gesture into something more concrete.
There have been whispered threats of Beijing being branded a "currency manipulator" in an upcoming US Treasury Department report, which would strengthen the argument of those calling for trade sanctions on China.
Indeed, Democrat Senator Charles Schumer, cosponsor of a bill that would impose a 27.5% tariff on Chinese imports unless Beijing moves to greater currency flexibility, has said he is frustrated at the lack of progress.
However, Beijing insists it will not be rushed into making changes and reform will be gradual. "We will not listen to someone else's conductor when doing what we need to do," Finance Minister Jin Renqing said ahead of the summit.
Economy grows 9.4%
China's economy expanded 9.4% in the first nine months of this year, with full-year growth expected at 9.2%. The trade surplus narrowed sharply in September, with customs data showing a drop in the monthly surplus to US$7.6 billion – the smallest since April – the result of continued growing imports and slowing export growth. China's total trade surplus for the first nine months of this year rose to US$68 billion as exports surged 31% over a year earlier to US$546.4 billion and imports reached US$478.1 billion, up 16%.
FDI down first nine months this year
Actual foreign direct investment into China fell 2.11% year-on-year to US$43.25 billion in the first nine months of the year, although contracted FDI – investment pledged but not yet used – for the period rose by 21.81% to US$130.33 billion. This was thought to be a response by foreign investors to concerns of oversupply in industries such as steel, real estate and auto manufacturing. Only the US ranks higher than China as a destination for FDI.
China's World Bank role is changing
World Bank President Paul Wolfowitz said China was on the way to becoming a World Bank donor rather than a borrower but noted that serious imbalances remain in the country, particularly the urban-rural income gap and environmental damage. Speaking during his first visit to China as bank chief, Wolfowitz said Beijing recognized the need to address these imbalances and that the World Bank was keen to support such efforts. The bank already contributes US$1 billion a year to China, much of it aimed at the nearly 200 million mainlanders still living in extreme poverty.
HSBC: growth is slowing
A senior economist at HSBC said that China's economic growth had reached its peak rate due to the slowdown in private investments that has followed Beijing's new credit tightening policies. In an interview with The Malaysia Star, Qu Hongbin said the government was trying to slow down investment in a few key areas, such as steel. Qu predicted that, with the deceleration of private investment, China's GDP growth would only reach 7.5% next year, compared with 9% this year.
IMF calls for flexible currency
IMF directors said China needs to loosen the leash on the yuan in order to insulate the economy from the volatility of foreign exchanges. It also said China had a responsibility to help smooth out current global imbalances, in part caused by its yuan exchange rate. The group advised China to allow its central bank to set interest rates and to raise its dependence on market-based instruments.
Urban-fixed asset investment up 28.5%
China's urban-fixed asset investment grew faster than expected at a rate of 28.5% in August from a year ago. However, August's growth remains much lower than the soaring 40-50% growth rates seen in 2003 and parts of 2004. Economists believe this means the government won't feel the need to curb growth by tightening monetary policy.
Industrial output grows 16%
China's value-added industrial output grew 16% in August from one year earlier, marking a negligible shift from a 16.1% rise in July and slightly larger gain than August's expected 15.7% rate of growth. Industrial output rose 16.3% in the first eight months of the year driven by both external and internal demand.
China in "key period" for soft landing
China's economy is entering the "key period" for a soft landing given the government's efforts to rein in investment in overheated sectors such as steel and real estate. Urban investment during the first eight months of the year totaled US$508 billion, up 27.4% year-on-year.
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