China/RMB: Patience and Stbility

UNCLAS SECTION 01 OF 02 BEIJING 000311

SIPDIS
SENSITIVE

STATE FOR E, EAP/CM, EEB/OMA
TREASURY FOR OASIA/DOHNER, WINSHIP
NSC FOR LOI

E.O. 12958: N/A
TAGS: ECON EINV EFIN CH
SUBJECT: China/RMB: Patience and Stbility

REF: BEIJING 147


1. (SBU) Summary. Senior Chinese officials continue
to signal publicly that China's currency is pegged at
a basically "reasonable level." In a meeting with the
Ambassador today, Central Economic and Financial Leading
Group Vice Minister Liu He urged patience on the exchange
rate issue, noted that the Renminbi "had to" appreciate,
but at a "controlled pace," but added that outside
pressure was "not helpful." Earlier in the week in
Davos, Senior Vice Premier Li Keqiang argued that
the stable Renminbi, by supporting Chinese demand,
had in turn supported global recovery and called the
exchange rate "reasonable and balanced," a position
reiterated by the Ministry of Foreign Affairs (MFA)
spokesperson a few days later. A People's Bank of
China (PBOC) Deputy Governor, also in Davos,
explained that China would look at revaluing its
currency when global partners begin to withdraw
their stimulus packages. A forceful lead article
today in the English-language China Daily asserted
that China would not "fold" to foreign pressure on
the currency issue, but a quasi-official economist
published an article speculating that China could
appreciate the Renminbi in March. End Summary.

Liu He: Patience
--------------


2. (SBU) Central Economic and Financial Leading
Group Vice Minister Liu He told the Ambassador today
that dealing with the Renminbi would be as tough as
any issue on the bilateral agenda. He said he
understood that the United States had upcoming
elections, high unemployment and monetary pressure
to manage. China, however, could not forgo exports
too quickly and also was worried about employment,
making currency a political issue for Beijing as
well. For economic reasons, Liu stated that the
Renminbi "had to" appreciate, but at a "controlled
pace." Outside pressure was not helpful; Liu
recommended the Secretary Geithner maintain his
current approach to the issue. He asked for
patience on the U.S. side while China awaited an
opportune time to proceed, suggesting that the U.S.
and China look for other opportunities to
demonstrate that the relationship could create jobs
in America and investment returns for China.

Li Keqiang: Stable RMB "Positive"
--------------


3. (SBU) Vice Premier Li Keqiang did not address the
sensitive issue of exchange rates directly during
his January 28 speech at the World Economic Forum in
Davos, Switzerland. During a discussion with
corporate executives, however, Li asserted that
China will maintain the exchange rate at its current
level. Restating the standard Chinese points, Li
said "China is consistent and responsible with its
RMB exchange rate policy. We will--according to the
principles of pro-activity, controllability and
incrementality--perfect the RMB exchange rate
formation mechanism to maintain it at a reasonable
and balanced level." Li asserted that China's
policy of stabilizing the Renminbi at a "rational
and balanced level" contributed positively to the
global economy. He explained that China's economic
and financial stability could not be separated from
RMB stability, and Chinese domestic demand played a
positive role in global economic stabilization and
recovery. Li's points were echoed in a February 23
editorial in the official Chinese-language Renmin
Ribao (People's Daily) asserting that China's
Renminbi policy had helped the global economy and
the call for appreciating was merely a "political
bargaining chip."

Zhu Min: When Others Exit
--------------


4. (SBU) Also at Davos, People's Bank of China
(PBOC) Deputy Governor Zhu Min said the stable
exchange rate had been "a stimulus package" and
China would look at revaluing its currency when

BEIJING 00000311 002 OF 002


global partners begin to withdraw their stimulus
packages. Sounding a similar note to Li, Zhu said
the move was "good for China and also good for the
world." "If global (partners are) ready to do exit
strategy, China is ready ... including various
issues -- liquidity issue, exchange issue." He
further warned that revaluation of the Renminbi
would not in itself resolve global trade imbalances,
stating "exchange rate is an issue within this
rebalancing issue."

MFA: Reasonable Level
--------------


5. (SBU) Chinese Foreign Ministry spokesman Ma
Zhaoxu---responding on February 4 to a question from
the media about President Obama's comments to Senate
Democrats-reiterated that Chinese point that
exchange controls are not to blame for China's trade
surplus. He stated that "China does not seek a
trade surplus with the US" and the Renminbi's
exchange rate against the dollar was largely at a
reasonable level. Accusations and pressure did not
help to solve the problem, Mr. Ma added.

China Daily: China Won't Fold
--------------


6. (SBU) The official English-language China Daily
ran a front page, above-the-fold article headlined
"China Won't Fold on RMB: hasty appreciation of the
yuan will be detrimental to China's economy." The
article quoted Ministry of Commerce-affiliated
economist Li Jian stating "China will not
(appreciate) in accordance with the US' demand." He
claimed the yuan will be "largely" stable this year,
without a sudden or quick revaluation.

CASS Zhang Ming: Time to Appreciate Coming
--------------


7. (SBU) There are still dissenting voices on RMB
appreciation within the official academic community
in Beijing. China Academy of Social Sciences (CASS)
World Economic and Political Research Institute vice
director Zhang Ming wrote today in the Chinese-
language "Hexun" financial news service that the
timing for Renminbi appreciation might move up as
China faces the possibility of overheating in the
first quarter. Zhang thought the government might
choose to address inflationary pressures by moving
the exchange rate, bringing down the cost of
imported commodities. To prevent anticipatory
speculative inflows, Zhang guessed that Beijing
might appreciate earlier than expected, around March
National People's Congress meetings.

HUNTSMAN