Yikes! Just when you thought things had quieted down on the China front, our dear senator from New York, one Charles Schumer, is back on the China-bashing warpath together with some of his senatorial colleagues. (Yes, China-bashing is a bipartisan pastime paradise.) With the US-China Strategic Economic Dialogue scheduled for 24-45 May in Beijing, congressional pressure is back on the rise to embarrass the hosts. What is interesting from an IPE angle is that these senators are calling for the Chinese to disclose an IMF report billed as the "smoking gun" pointing to their currency manipulation. Like Bigfoot, the Loch Ness Monster, and Sasquatch, international economics also has its unique legends and folklore.According to the senators, China muzzled disclosure of IMF views of its currency practices during the annual IMF Article IV surveillance of member countries, last performed on China in 2009. Briefly, here is what the IMF had to say on the matter of Chinese currency in the 2009 Article IV report:
Directors welcomed the important progress made in the past few years in increasing the market’s role in determining the exchange rate, as well as the consequent substantial real appreciation that has been achieved since the exchange rate reform in 2005. Some Directors nevertheless supported the view that the renminbi remains substantially undervalued. Looking ahead, many Directors considered that a further strengthening of the renminbi would be part of a comprehensive strategy to rebalance the economy by increasing the purchasing power of households and the labor share of income, and reorienting investment toward non-tradable sectors. Exchange rate flexibility would also allow monetary policy to focus more clearly on price stability. A number of other Directors pointed to the methodological difficulties of making exchange rate assessments. These Directors generally considered that exchange rate appreciation would only play a supplementary role in supporting reforms to reorient the Chinese economy and should be pursued in a gradual manner, as and when conditions permit.What the senators claim is that certain sensitive portions on the PRC's currency practices have been omitted from the above:
They said China had suppressed the IMF staff report from the fund's annual Article IV consultation with China last summer. Such staff reports contain assessments of a country's currency policies, but IMF member states can decide whether or not to release them.And what follows is the now-infamous "smoking gun" letter from Schumer and Co. calling for the unexpurgated text of the IMF surveillance report to be released for the world to see. Going by Tim Geithner's timid past record on China, i'd say they're agitating for something that isn't forthcoming...
"This report could be the smoking gun that confirms that China has been intentionally manipulating its currency to gain an unfair trade advantage," Schumer said in a statement. "The fact that China insists on keeping the report under wraps is reason to believe they have something to hide. The administration should press for the report's release at next week's summit," Schumer said in a statement.
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May 18, 2010
The Honorable Timothy F. Geithner
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Geithner,
As a member of the International Monetary Fund, China has agreed to subject its economic and financial policies to the scrutiny of the international community. We believe China is failing to live up to this commitment and urge you to convey to the Chinese government the importance of taking a substantive step to demonstrate its willingness to participate in candid, public dialogue about its exchange rate policies and other economic matters. To that end, we propose that at the upcoming S&ED and G-20 meetings you request the Chinese government to make public the Staff Report and other accompanying analysis from the IMF’s 2009 Article IV consultations with China.
The IMF’s annual comprehensive Article IV consultations provide a frank appraisal of a country’s economic and financial policies, including an assessment of its exchange rate policies. IMF member countries have the option to make public the Fund’s assessment. The overwhelming majority – 90 percent of the 186 member countries – opt for transparency, making the extensive information in the IMF’s Staff Reports publicly available on the IMF’s website. China’s failure to do so in 2009, despite regularly opting for transparency in previous years, is troubling, suggesting that China seeks to suppress any findings critical of China’s manipulation of the value of its currency.
Mr. Secretary, in April you decided to delay publication of the Treasury’s exchange rate policy report, apparently in the hope that China might be willing to address concerns about its exchange rate policies in the context of upcoming high-level, multilateral discussions on policies that can help create a stronger, more sustainable, and more balanced global economy. Given China’s past intransigence on exchange rate reform, we are not similarly optimistic that these high-level meetings will generate any significant breakthrough on this issue. As you know, this is one reason why we are moving forward with legislation (the Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010 (S.3134)) to provide specific consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment.
Nevertheless, the upcoming S&ED and G-20 meetings do present a unique opportunity for the Chinese government to demonstrate a commitment to productive talks on global rebalancing, which necessarily includes a discussion of exchange rate policies. An agreement by the Chinese government to make public the Staff Report from its 2009 Article IV consultations would be a constructive contribution to those discussions. We urge you to convey to the Chinese government the importance of taking this visible step.
Sincerely,
Charles Schumer (D-NY), Lindsey Graham (R-SC), Debbie Stabenow (D-MI), Sam Brownback (R-KS), Sherrod Brown (D-OH), Susan Collins (R-ME), Russ Feingold (D-WI), Carl Levin (D-MI), Jim Webb (D-VA) and Robert Casey (D-PA)
