When will China remove the dollar-renminbi peg and let its currency appreciate against the dollar and the currencies of its trading partners?
Thanks to U.S. ambassador to China Jon Huntsman at least when the United States timetable for China to act. On November 19 he told Bloomberg that President Barack Obama had told Chinese president Hu Jintao and premier Wen Jiabao that the U.S. expects to see progress by next summer when U.S. the secretaries of state and treasury meet with their Chinese counterparts.
As anyone who followed President Obama’s trip to China knows, what the United States wants and what China delivers are two very different things.
And China has a recent history of getting its back up whenever it feels pressure from other countries, especially the United States.
So I’m certain that China feels no pressing need to deliver on a U.S. schedule.
In fact, I think China will go out of its way to make sure that no one can interpret any change in currency policy as a reaction to U.S. pressure.
In practical terms that means China will either relax the dollar-renminbi peg, which has kept the exchange rate fixed at 6.8 renminbi to the dollar since July 2008, in the spring—far enough in advance to make of the summer meetings with U.S. officials to make it clear there is no connection between the move and U.S. pressure—or delay it until the fall—again making it clear that China doesn’t need to bow to anyone.
Which will it be? Depends, as it always has really, on when China feels its economy is back on a steady growth path. On November 19 the Organization for Economic Cooperation and Development (OECD), the economic think-tank for 30 of the world’s most developed economies, raised its forecast for 2010 economic growth to 10.2%. For 2011the organization is projecting 9.3% growth in GDP for China.
Just as importantly for the leaders in Beijing, the OECD raised its forecast for U.S.GDP growth to 2.5% in 2010 from a June forecast of just 0.9% growth in June. In 2011 the U.S. economy will grow by 2.8%, it projected. Beijing is looking to see when the U.S. economy will be growing fast enough so U.S. consumers can buy enough its exports before letting the renminbi appreciate. A more expensive renminbi would erode China’s current competitive advantage versus other Asian exporting countries.
When Beijing comes to believe in numbers like those in the OECD forecast, it will loosen the dollar-renminbi peg. Not before.
What the U.S. says it wants might tweak the timing of any announcement of that decision. No more.