Beijing is not bending.
In one the clearest signs yet that China will continue to resist calls for a revaluation of its currency, Chinese Premier Wen Jiabao has offered another stark rejection to the West.
"The Chinese currency is not undervalued," Mr. Wen said Sunday at the close of the National People's Congress in Beijing. "We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies."
His stance, experts say, reflects an increasingly confident China that knows the United States and Europe are in no position to lecture it on any major issue, from currency policy to political development. Mr. Wen went further than normal, however, labelling the international pressure on China to allow its currency to rise as "a kind of trade protectionism."
There's a mood of stubborn pushback that's been coming out of Beijing since the fall... The revaluation of the currency is not something they need to do to please the United States, but to rebalance their own economy. Jeremy Paltiel, Carleton University
Beijing had previously pegged the yuan to the U.S. dollar, but abandoned that policy in July, 2005, in favour of a complex formula composed of various currencies, including the Japanese yen, the euro, the South Korean won and the dollar. For three years, it allowed the yuan to slowly appreciate, but as the global downturn accelerated in 2008, China began to align the yuan more with the greenback, a decision Mr. Wen has since said is "temporary."
The currency's value has remained largely unchanged at about 6.8 yuan for every U.S. dollar since mid-2008.
Even if revisiting the currency could give a boost to the global economy, Mr. Wen's latest remarks are a reminder that a timetable for change will ultimately come from Beijing, not Washington. And as the chorus grows louder in the U.S. for the Obama administration to formally designate China a currency manipulator, it is clear the bitter spat will continue to sour U.S.-China relations.
It's not that officials in Beijing can't hear the growing cries in the United States and elsewhere to revalue the Chinese yuan. The message from Washington and Brussels has been conveyed through the highest diplomatic channels and is perfectly clear: An undervalued yuan has allowed China's export-driven economy to soar, offered China's youthful technology and financial services sectors a source of protection, while at the same time acting to limit American and European exports to China.
Chinese leaders know this complicated formula intimately, and that is precisely why they are refusing to allow the yuan to appreciate from its pegged position. With Mr. Wen's latest rebuke of foreign governments, "they're more or less throwing the gauntlet down," said Charles Burton, who twice served as an in-house counsellor at Canada's embassy in Beijing and is now a professor at Brock University.
"In the past, the Chinese comments on this issue have been more ambiguous, more promising," he said. "As there is a perception that United States is weakening, the Chinese are becoming much more assertive in stating their position, and these remarks by the Chinese premier are pretty direct, pretty clear."
Ever since the financial crisis, which took root in the U.S. housing market and spread overseas partly through Wall Street's aggressive investment banking practices, Washington has had little to no leverage in negotiations with Beijing.
When President Obama visited the Chinese capital late last year, his statements were largely deferential, with no harsh words on human rights, Tibet or the currency. President Obama also refused to meet the Dalai Lama when he visited the U.S. Observers took these moves as a sign that America no longer holds the cards in the relationship with Beijing, but also as symbolic nods to a new global order in which China now sets or dismantles the agenda, rather than abides by it.
This is not the first time Mr. Wen has issued this type of missive. As the financial crisis worsened, he warned Washington that America needed to reassure international investors that it was not spending recklessly. No one is a bigger international investor in the U.S. than China, which holds an estimated trillion dollars of U.S. government debt; Mr. Wen said he was "worried" about China's investments.
In the United States, voices have grown louder about Chinese currency policy as the U.S. struggles with 10 per cent unemployment and an eroded manufacturing sector.
On Friday, prominent U.S. economists, including Nobel Prize winner Paul Krugman, said at a symposium in Washington that the Obama administration should label China a currency "manipulator," a decision the U.S. Treasury Department has to make by April, when it issues a semi-annual report to Congress.
But Mr. Wen's comments should not be taken as a sign that China will never revalue its currency, said Jeremy Paltiel, a professor of political science at Carleton University. China could still do so for a host of domestic economic and political reasons, though it would likely not do so at the behest of foreign government or signal ahead of time when it would do so, said Mr. Paltiel, who just returned from a semester teaching at Beijing's Tsinghua University, often called China's MIT.
"There's a mood of stubborn pushback that's been coming out of Beijing since the fall," he said. "The revaluation of the currency is not something they need to do to please the United States, but to rebalance their own economy."
Letting the yuan appreciate would shift the focus away from export-led growth and stimulate domestic consumption, Mr. Paltiel said, especially in the impoverished interior.
While modern China's manufacturing boom has benefited China's coastal cities immensely, much of the interior remains impoverished and, in places, politically volatile because of a lack of economic development.
China's leaders have been content to cement their rule with the gross domestic product growth that comes with this uneven development. But as the U.S. dollar falls, the fixed yuan is becoming a global and regional issue.
"If the renminbi doesn't adjust to the fall of the U.S. dollar, the impact kind of sloshes over onto other currencies, like the Canadian dollar," Mr. Paltiel said.
The Chinese Premier embodied this confident assertiveness again on Sunday, when he offered his rebuke to governments he clearly feels don't quite understand post-crisis geopolitical realities.