Wen Jiabao: Calls to Revalue RMB = Protectionism

The Chinese appear to be fighting back in the discussion over the value of their currency. With calls for Chinese currency to move to a more "market-oriented" exchange rate (i.e., revalue) emanating from the American President, Treasury Secretary, belligerent lawmakers, and even noted international economist Paul Krugman, Premier Wen Jiabao's turn has come. First, he cleverly changes the topic by reiterating his previous concerns about the safety of the PRC's dollar assets:

Wen urged America to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit. Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion.

And he also equates calls to revalue with "protectionism":

“The Chinese currency is not undervalued,” Mr Wen said during his annual press conference at the closing of the annual meeting of the Chinese legislature. ”We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies.”

Mr Wen said he understood that countries wanted to increase exports but said they should not resort to what he described as protectionism. “What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism,” Mr Wen said.

China Daily hits all these points as it, of course, conveys the official portrayal of events. So, it appears Chinese leadership does not appreciate calls to revalue--even if many believe it's in their best interests to do so, including myself. What will be interesting to see is if concerted bellyaching from American leadership sets the stage for eventually classifying China as a currency manipulator, opening the door to punitive legislation against China. We will get our first clue if the US is moving towards that direction with Treasury's required mid-April decision.

PS: IR/IPE stalwart Joseph Nye has commentary on "China's Bad Bet Against America" in the Korea Times you may want to read featuring the precious line "True, if China dumped its dollars on world markets, it could bring the American economy to its knees, but in doing so it would bring itself to its ankles" [!]