BEIJING – A pending trade deal between the United States and China may impose few restrictions on Beijing's currency control, which could ignite trade hawks in Congress and the Trump administration herself.
China's control over the value of its currency has long been a major point of conflict between Beijing and the West, although the issue has faded in recent years. Lawmakers and officials in other countries have claimed that Beijing has unfairly weakened the Chinese currency, the renminbi, against the US dollar and other currencies, giving Chinese companies and factories an advantage in the sale of goods. abroad.
China has long denied the prosecution.
Yi Gang, the governor of the Chinese central bank, said at a press conference Sunday morning in Beijing that during the high-level trade talks held in Washington last month, "the two sides reached a consensus on many essential questions "concerning the foreign exchange markets.
The consensus included an agreement that both countries would avoid devaluing their currency to gain a competitive edge over their exports, Yi said. The two countries will also continue to comply with previous foreign exchange agreements among the economies of the Group of 20, he said. The two countries would also maintain close communication on the foreign exchange markets and disclose detailed information in accordance with the standards of the International Monetary Fund, he added.
US officials have adopted various positions on currency provisions. President Trump and Treasury Secretary Steven Mnuchin have expressed their appreciation for them. However, Robert E. Lighthizer, US Trade Representative, warned Congress in his testimony two weeks ago that nothing was completely resolved in the trade negotiations until everything was settled.
Although the issue has eased with the strengthening of the Chinese currency in recent years, the trade war has given it new relevance. The renminbi fell 10% against the US dollar between February and last October, much to the chagrin of trade hawks under the Trump administration.
In fact, this partially offset the 25% tariffs imposed by the Trump administration over the summer on $ 50 billion a year for Chinese products. This fully offsets, at least temporarily, the 10% tariffs imposed by Mr. Trump on an additional $ 200 billion per year on Chinese products.
But the fall of the renminbi corresponds to a tightening of credit in China and the precipitous slowdown of the Chinese economy. The Chinese authorities say that the fall of the renminbi is a reflection of the strength of the dollar and not the monetary manipulation. Miao Yanliang, the chief economist of the Central Bank of China, the People's Bank of China, said in a recent statement that the euro had fallen against the dollar at about the same pace as the renminbi's from February to October, while the pound was falling even faster.
Since the end of October, the renminbi has recovered almost half of its losses during the slide of last year. Foreign investors paid money on Chinese stock and bond markets. They hope to take advantage of China's recent public spending reduction program and tax cuts, which are being put in place to offset the slowdown in the economy.
The currency provisions of the evolving trade agreement are essentially a reaffirmation of the statement that the G-20 economies, including China, issued when the group's finance ministers gathered in Shanghai in February 2016.
In the Shanghai currency agreement, all of the group's finance ministers agreed not to deliberately devalue their currencies in order to give their exports a competitive advantage. When the currency of a country falls in value, the country's exports become cheaper and more competitive abroad.
However, the agreement on the Shanghai currency, like the currency provisions of the Sino-US trade agreement being negotiated, still allowed currencies to go up and down for many other reasons. These reasons include differences in interest rates and investment flows, as well as trade surpluses and deficits.
China has long argued that these variables determine what happens to the value of its currency and that it does not deliberately underestimate its currency to help exporters.
The agreement on Shanghai currencies did not require China to fix its currency at a specific value against the dollar. Nor did it ask China to maintain a stable value of the value of its currency against the weighted average of the currencies of its trading partners.
Beijing argues that it is more accurate to measure the value of the renminbi against a so-called basket of currencies of its trading partners, not just against the dollar.
The Shanghai currency agreement also required the G20 finance ministers to notify each other of significant changes in monetary policy and to disclose their data in accordance with I.M.F. standards.
Japan had been very insistent that the Shanghai Agreement be implemented because of the concern of Japanese exporters about the Chinese devaluation.
This devaluation helped the Chinese exporters somewhat, but it was very expensive in Beijing. Once the renminbi began to slide, it proved very difficult to stop. The central bank ended up spending $ 1 trillion of its $ 4 trillion in foreign exchange reserves to stabilize the currency.
Yi said Sunday that the central bank now had the objective of maintaining foreign exchange reserves of at least $ 3 trillion. Reserves have fluctuated at about this level over the last three years and totaled $ 3.09 billion in February.
This leaves the Chinese central bank with very little room to intervene again in the currency markets without falling below the threshold set by Mr Yi.
The charge of US officials that China handles its currency is based on a period from early 2001 to summer 2014, when the Chinese central bank actually sold the renminbi and bought a lot of dollars to keep it low and help exporters.
China's foreign exchange reserves increased 24-fold during this period, from $ 166 billion to $ 4 trillion, which is lower than the reserves of all other countries.
But since then, the Chinese authorities have struggled to prevent the renminbi from falling. Faced with the slowdown in the Chinese economy, many Chinese companies and families have been looking for ways to send money out of the country, potentially destabilizing not only the renminbi, but also the Chinese financial system.
Beijing has responded since 2016 with increasingly stringent restrictions on capital movements. Utilizing the formidable investigative and surveillance capabilities of Chinese police, the government has imprisoned people involved in clandestine money movements abroad.
The repression has almost completely stopped what had been an influx of Chinese money into US real estate and even into European football clubs in 2015 and early 2016. China now approves some acquisitions abroad by its companies, except in areas where it could acquire a geopolitical or military advantage, such as aeronautics construction, cybersecurity and artificial intelligence.
Yi spoke at the annual Central Bank Leaders' Press Conference on Sunday as part of the 11-day National People's Congress.