WSJ LEADING THE NEWS - Chinese premier says yuan not undervalued

B Y ANDREW BATSON
BEIJING


Premier Wen Jiabao Sunday warned other countries not to pressure China over its exchange-rate policy, and argued strongly that the yuan isn't undervalued.
Speaking at his annual press conference at the close of the Chinese legislature's session, Mr. Wen was careful not to rule out the possibility that the yuan could resume rising, and he reit- erated previous government statements that China intends to continue reforming its currency system.

But he also spent several min- utes systematically rebutting ar- guments in favor of apprecia- tion, noting that even as China's exchange rate against the dollar didn't change last year, exports from the U.S. and Europe to Chi- na were more robust than ex- ports from those countries to the rest of the world...

"First of all, I do not think the renminbi is undervalued," Mr.
Wen said, using the official term for the Chinese currency. "We are opposed to the practice of mutual finger pointing among countries or taking strong meas- ures to force other countries to appreciate their currencies. To do this is not beneficial to re- form of the renminbi exchange- rate regime."

China's currency has been ef- fectively pegged to the dollar since China halted the gradual appreciation of the yuan in mid-2008. Officials and econo- mists in the U.S. and other coun- tries say that the government's policy has kept the yuan is seri- ously undervalued, and com- plain that this gives it exports an unfair advantage by making them artificially inexpensive.

In response to a question from The Wall Street Journal about concerns that China's environ- ment for foreign business has worsened recently, Premier Wen noted that China continues to enjoy large inflows of foreign di- rect investment. He pledged to "unswervingly" open the econo- my to outside investors and said foreign businesses were wel- come to open businesses in Chi- na, especially research and de- velopment centers.

He didn't respond to the question's specific mention of Google Inc.'s threat to pull out of China over censorship and al- leged cyber attacks and of con- cerns about China's detention last year of four executives from Anglo-Australian mining giant Rio Tinto on allegations of com- mercial espionage.

But in a candid admission that the current administration has not built strong relationships with foreign business represent- atives, Mr. Wen pledged to meet more often with investors.

"I must say I am still not in very close touch with foreign businessmen doing work in Chi- na," Mr. Wen said. "In the next three years I will create more op- portunities to meet foreign businessmen... I will have the oppor- tunity to listen to your views."

Mr. Wen also said that U.S.-China relations were in a new phase that goes beyond standard ties and could scale new heights. But he chastised the Obama administration for meeting Tibet's spiritual leader, the Dalai Lama, and for selling arms to China's rival, Taiwan, which China claims as part of its territory.

"These moves have violated China's territorial integrity," Mr.
Wen said. "The responsibility does not lie with the Chinese side but with the United States." Mr. Wen said that a good Chi- na-U.S. relationship "makes both sides winners while a con- frontational one makes both sides losers."

Mr. Wen also said his con- science is clear on China's role at the U.N.-sponsored climate meeting in Copenhagen late last year, which failed to reach a binding agreement on climate change, and said China played its part in producing a good out- come to the summit.

Mr. Wen said the past two years have been extremely chal- lenging for China and that the country still faces difficulties ahead. The government must stay vigilant over these difficulties over the next few years, he said. Looking outside of China, Mr. Wen said the world might face a "double dip" recession amid risks in financial systems and continued high jobless rates in many countries.

Mr. Wen also gave a robust defense of free trade. "I am a strong supporter of free trade," he said. "Free trade can not only promote the growth of the world's economy but it can pro- mote peace in the world."

But he said that some coun- tries were engaging in protec- tionism in order to promote their exports. "All countries should be fully alarmed by this development," he said.

In a possible reference to U.S.
policy on the dollar, he said, "What I don't understand is de- preciating one's own currency and pressing other countries to appreciate their own currencies just for the sole purpose of in- creasing their trade," Mr. Wen said. "In my opinion this is trade protectionism."

The dollar, which fell for much of last year has gained against major currencies in re- cent months.

Mr. Wen also downplayed China's role as the world's larg- est trading nation. He noted that 50% of China's trade is process- ing trade and 60% of exports are foreign-invested enterprises or joint ventures. Limiting China's trade would hurt these foreign companies, he said. Mr. Wen called for a successful conclu- sion of the Doha round of trade talks and called on European companies and the U.S. to lift re- strictions on high-tech exports to China and to designate China officially as a market economy.
Mr. Wen said these two meas- ures would help balance trade.

Mr. Wen also said Sunday that cutting tariffs on Taiwanese ex- ports to China is one of the ben- efits for Taiwan being discussed under an economic cooperation pact between the two sides.

He said the pact between Chi- na and Taiwan should be based on an equal and mutually bene- ficial basis. He also reiterated discussions will take into con- sideration the different sizes of the two economies, with special consideration given to Taiwan's small companies and farmers.

He also reiterated his desire to visit Taiwan one day, saying Tai- wan and China are "brothers."

Ting-I Tsai, Liu Li and Aaron Back contributed to this article.


SOURCE:lIVE mINT