US, China clash over yuan
Obama accuses Asian giant of money-market manipulation as G20 meeting closes in disarray
Published 13/11/2010 | 05:00
US President Barack Obama attacked China's policy of undervaluing its currency minutes after he and other G-20 leaders ended a summit that failed to agree on a remedy for trade and investment distortions.
"It is undervalued," Mr Obama said of the yuan, speaking in Seoul after the meeting finished. "And China spends enormous amounts of money intervening in the market to keep it undervalued."
The G-20 leaders agreed to develop early-warning indicators to head off economic turmoil as emergency talks on Ireland's debt reminded them the recovery from the financial crisis remained fragile. Mr Obama and his South Korean counterpart failed to complete a free-trade agreement.
The two-day gathering was marked by clashes over whether Chinese or US policies were more to blame for economic imbalances that endanger the global recovery.
China took aim at the US Federal Reserve's monetary easing, highlighting dangers it said the move posed to financial stability and rejecting policy prescriptions that fault its exchange-rate regime.
"I have to give this round to the Chinese," said Tim Condon, head of Asian research at ING Groep NV in Singapore.
"In an international negotiation like this China has seized on" the easing "to its advantage and managed to deflect any kind of criticism the US might have been able give".
Finance ministers from the G-20 will work next year on a set of "indicative guidelines" designed to identify large economic imbalances and the actions needed to fix them, according to a joint statement released as the Seoul summit came to a close.
The indicators will be selected with the help of the International Monetary Fund and developed next year when France holds the G-20 presidency, the statement said.
"Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions," the statement said. "Uncoordinated policy actions will only lead to worse outcomes for all."
China has $2.65 trillion of foreign currency reserves, more than double any other country. It ran up a $201bn trade surplus with the US in the first nine months of this year, more than the US deficit with the next seven-largest trading partners combined, according to US Commerce Department data.
Cliff Tan, head of emerging-market currency research at Societe Generale SA in Hong Kong, said the summit did nothing to curb what he sees as an inevitable decline in the dollar against emerging-market currencies.
The G-20 said emerging markets facing a surge of capital inflows can adopt regulatory steps to cope, offering them cover to limit currency swings and stem asset bubbles as the US adds $600bn of liquidity from the Fed's quantitative easing.
"In circumstances where countries are facing undue burden of adjustment, policy responses in emerging-market economies with adequate reserves and increasingly overvalued flexible exchange rates may also include carefully designed macro-prudential measures," the G-20 leaders said.
Meanwhile, G-20 discussions were clouded by concern Ireland may need the EU to step in with a bailout after our bond yields surged to a record.
"These were hard and sometimes difficult negotiations," German Chancellor Angela Merkel said. "In the end the spirit of co-operation prevailed."