Obama calms China renminbi dispute

By Daniel Dombey and Alan Beattie in Washington and Geoff Dyer in Beijing

Barack Obama sought to defuse the US-China confrontation over the renminbi on Tuesday by ack­now­ledging Chinese sensitivities about the US ­campaign for currency appreciation.

Speaking at the end of the nuclear security summit he hosted in Washington, the US president depicted the relationship with China as increasingly productive – a sign of his administration’s growing confidence that Beijing is moving the way the US wants on the renminbi and sanctions on Iran. The two issues are among Mr Obama’s international priorities.

“China rightly sees the issue of currency as a sovereign issue,” he said when asked about his meeting on Monday with Hu Jintao, China’s president. “They are resistant to international pressure when it comes to them making decisions about their currency policy and monetary policy.”

But he added that a “more market-oriented currency approach” would be in China’s own interest and would help rebalance its economy away from exports towards domestic consumption and production, so as to avoid “bubbles from building up within the economy”.

Mr Hu has sought a similar delicate path of his own, asserting Beijing’s right to set exchange rate policy while avoiding open conflict with the US over one of the most sensitive issues in international diplomacy.

“China will firmly stick to a path of reforming the yuan’s exchange rate formation mechanism,” he told Mr Obama on Monday, according to China’s official Xinhua news agency. But the agency reported that he also insisted that a move by Beijing “won’t be advanced by any foreign pressure” and indicated he did not share the US view that revaluation would help rebalance the world economy.

“Renminbi appreciation would neither balance Sino-US trade nor solve the unemployment problem in the United States,” Xinhua quoted him as saying.

Financial markets reacted by lowering somewhat expectations for liberalisation of the renminbi. Economists said a gradual rise beginning around the middle of the year was still the most likely outcome.

“It is only a matter of time before China moves but they like to do things in response to domestic economic conditions,” said Kevin Grice, international economist at consultancy Capital Economics.

US officials also highlight increased co-operation with Beijing on the Iran file, despite disputes this year over Taiwan, Tibet and Google.

“The amount of turbulence ... was actually relatively modest when you look at the overall trajectory of US-China relations,” said Mr Obama, noting that China had “sent official representatives to negotiations in New York, to begin the process of drafting a sanctions resolution” on Iran at the United Nations.

In Beijing, the message was more nuanced. “Sanctions and pressure cannot fundamentally resolve the issues, and dialogue and negotiation are the best ways,” said Jiang Yu, a spokeswoman for the Chinese foreign ministry. But she also signalled that UN Security Council measures were now likely. “We believe the Security Council’s relevant actions should be conducive to easing the situation and conducive to promoting a fitting solution to the Iranian nuclear issue through dialogue and negotiations,” she said.