Wang Says China Leaders Must Agree on Shift of Growth Model

The biggest hurdle facing China's economic rebalancing is reaching internal agreement that the country should rely less on exports and more on domestic consumption, Chinese Vice Premier Wang Qishan said today.
"Actually the biggest challenge for us in this respect is to make sure that everyone is on the same page," Wang said in an interview on the "Charlie Rose" show, scheduled to air later today on PBS and tomorrow on Bloomberg Television. "We need to come to the same conclusion that we must transform our economic development pattern."
Wang's remarks, in response to questions about when China might let its currency rise and take other steps to shift its economy toward domestic demand, acknowledged debates within the Chinese government over when and how much the yuan should appreciate. Such internal Chinese tensions have been a focal point for U.S. Treasury Secretary Timothy F. Geithner and other U.S. officials seeking to encourage China to make its currency more flexible.
Comments from Chinese officials have highlighted the range of views on the issue. People's Bank of China officials have said a rising yuan helps damp inflation, in support of the currency's gradual increase against the dollar, and Premier Wen Jiabaosaid last month that the exchange rate may play a role in reining in prices.
In contrast, Commerce Minister Chen Deming said today that exchange-rate reform has been "robust" from the perspective of trade, referring to declines in China's total trade surplus over the last three years and signaling a view that the currency's rise should not proceed any faster.
Yuan-Dollar
China's yuan traded at 6.4939 a dollar today, after touching 6.4892 on April 29, the strongest level since 1993. The currency has gained 1.5 percent this year. Twelve-month non- deliverable forwards reflected bets the currency will rise 2.3 percent from the onshore spot rate in a year, according to data compiled by Bloomberg.
Wang and Geithner spoke in a joint interview on the first day of this week's U.S.-China economic talks in Washington, which included Secretary of State Hillary Clinton and State Councilor Dai Bingguo. Clinton said the talks covered U.S. concerns about human rights and said that each nation benefits from a "thriving" economy in the other.
U.S. officials want the yuan to rise faster, saying the currency is a big contributor to a record trade deficit with China. The Obama administration and U.S. lawmakers say China's currency policy gives the nation's exporters an unfair competitive advantage, costing American jobs.
Currency Issue
Senator Sherrod Brown, a Democrat from Ohio, urged the administration to press China on the currency issue and also said Congress should pass legislation to protect American workers from an undervalued yuan. Brown and Senator Olympia Snowe, a Republican from Maine, have proposed a measure to allow additional sanctions to address currency issues.
"China's unfair currency manipulation has gone on for far too long, and it's clear that legislation is needed to level the playing field," Brown said in a statement.
Geithner used the first day of the Strategic and Economic Dialogue to emphasize signs of progress in relations between the two nations. On "Charlie Rose," he said China is moving "gradually" to avoid upsetting its economy, allowing the yuan to rise about 5 percent against the dollar since last June, or about 10 percent in inflation-adjusted terms.
"The Chinese economy is certainly in a position where it's strong enough it can withstand the pressures that come with letting your currency rise," Geithner said. If China doesn't allow its currency to strengthen, then "China will face a higher risk of inflation going forward."
Consumer prices in China grew 5.4 percent in March from a year earlier, the fastest pace in 32 months, partly driven by rising oil and food prices.
Wang said China's inflation is "the most pressing problem we face right now" and is an issue the government needs to tackle this year. Its solution will involve not only monetary and fiscal policies, but also how China will shift its economic structure, he said.