U.S.-China Finance Team to Meet in Beijing

Miami.com ^

[maui_hawaii]

WASHINGTON - A U.S.-China working group which the Bush administration hopes will pave the way for China to stop linking its currency to the dollar will hold its first meeting this week in Beijing, the administration announced Monday.

The six-member U.S. delegation will meet with officials from China's central bank and other Chinese government agencies to discuss various financial issues, including currency and banking matters.

The U.S. team is led by Assistant Treasury Secretary David Loevinger and includes officials from various government agencies.

Creation of the working group was one of the major outcomes of a summit meeting last fall between President Bush and Chinese President Hu Jintao.

The administration believes the technical discussions will help resolve obstacles to allowing the value of China's currency to be set by financial markets as opposed to the current system in which the Chinese government keeps the value of the yuan tightly fixed to the value of the dollar.

The administration is under heavy pressure from U.S. manufacturing groups to force China to stop the practice, which American companies contend undervalues the yuan by as much as 40 percent, giving Chinese companies a tremendous trade advantage.

America's trade deficit with China hit a record $124 billion last year, the highest imbalance ever recorded with any one country. American manufacturers see that huge deficit as a major reason the country has lost 3 million manufacturing jobs since July 2000.

The Chinese, in response to lobbying efforts by Bush and Treasury Secretary John Snow last year, have said they intend to eventually stop tying their currency to the dollar. But they have said they cannot make this transition immediately because of the danger that currency volatility could pose to the country's fragile banking system.

In a step toward eventually cutting the yuan's link to the dollar, the administration suggested establishing a working group that could explore a variety of financial issues that would be involved in the transition.

"The goal of this meeting is technical cooperation," said Robert Nichols, Treasury's chief spokesman.

[batter]

Sounds like a 'getting to know you' meeting. I doubt this meeting will make any significant progress, any real steps are quite a few meetings away (assuming Beijing uses these meetings constructively, rather than as a delay tactic).

Do you think floating the renminbi will take make a significant impact on the trade imbalance?
As I see it, it may make some of the US/Mexican etc companies a little more competative, but with so many corporations bee-lining to the PRC, the PRC has done an effective job at capturing many manufacturing jobs. It will take some major changes in renminbi value for those firms to benefit by again moving their manufacturing sources to different countries.

[maui_hawaii]

The fact that they are talking is HUGE step. I think this meeting is far beyond a get to know you. I think they are talking largely about nuts and bolts, not really trying to convince them to agree. The agreement has been made, this is a meeting about implementation.

Now, as to how it is going to go down...I think they will be on about a 3 year phase in plan.

The Chinese govt will allow more businesses (including foreign banks) to participate in forex. Thats one thing that will happen. Now one company handles 80% of all Chinese forex.

The whole thing won't just go kapoof and happen. It will happen over a 3 year period (I assume). Longer than that is wasting time, shorter won't be feasible.

As for what effect it will ultimately have is a whole different ball of wax. We won't see real numbers for 5 years.

I have an idea of how it will effect things, but I don't have time to go over it now. I probably should think on it more before saying anything anyway.