October 2, 2024

DealBook: London Wants to Tap Chinese Currency Market

The London offices of financial firms such as Swiss Re and Lloyd’s of London.Chris Ratcliffe/Bloomberg NewsThe London financial district.

LONDON — Britain plans to turn London into a major foreign exchange trading center for the Chinese renminbi to benefit from faster growth in Asia while strengthening the city’s position as a financial center in the wake of the banking crisis.

George Osborne, the chancellor of the Exchequer, said during a visit to Hong Kong on Monday that he was working with Chinese and British banks to establish London as a new hub for the renminbi market.

“London is perfectly placed to act as a gateway for Asian banking and investment in Europe, and a bridge to the United States,” Mr. Osborne said in a speech to the Asian Financial Forum in Hong Kong. “This is not just an accident of time zone, or our language, although both are important. It reflects London’s strength in product development, its regulatory structure, and the depth, breadth and international reach of its financial markets.”

The pledge comes as Britain is increasingly feeling the effects of an economic slowdown across Europe, and some British banks have threatened to move their headquarters abroad in light of stricter financial regulation.

The government hopes that steps toward creating a Chinese currency hub in London will help strengthen the city’s role as a financial center vis-à-vis New York and Hong Kong, while helping Britain attract Chinese investments in other sectors, including infrastructure.

Mr. Osborne said London was already the largest foreign exchange market in the world, adding that the growing use of the renminbi would “bring substantial benefit to Chinese economic development and the wider world economy.”

The Chinese currency’s share of the global foreign exchange market was 0.9 percent in June last year, Mr. Osborne said. That compares with China’s share in worldwide trade of 11 percent in 2010. “It is clear that there is scope for substantial expansion of the renminbi market in the coming years,” Mr. Osborne said.

Sébastien Galy, a foreign exchange strategist at Société Générale in London, agreed with Mr. Osborne that London’s geographical position allowed it to play a role in the expansion of the currency market, but he said it would take time for that market to grow to a sizable volume.

“It could take decades to achieve that, which doesn’t mean that the renminbi wouldn’t increase in trading volumes in the meantime,” Mr. Galy said. “There are regional issues, their markets are not developed enough yet and also you need a floating currency.”

In a first step to expand the currency trading, Hong Kong has decided to expand the operating hours of its renminbi settlement system by five hours. China has been using its currency more in international trade to reduce its reliance on the dollar.

Article source: http://feeds.nytimes.com/click.phdo?i=b4f7bffda1aa3701034258fa8318557e

China Isn’t Manipulating Currency, U.S. Says

WASHINGTON (AP) — The Obama administration on Tuesday declined to label China a currency manipulator after seeing recent increases in the value of the renminbi compared with the dollar.

The decision angered some manufacturing groups, which have accused China of artificially holding down the value of its currency, the renminbi, to gain trade advantages. A cheaper renminbi makes Chinese goods less expensive when they are shipped to the United States. It also makes American goods more expensive in China. Both could increase America’s trade deficit with China, which is on pace to reach a record high this year.

The Treasury Department said the renminbi had appreciated 12 percent against the dollar in the last 18 months, after adjusting for inflation. In addition, the department said in a semiannual report that China promised at two high-level meetings last month to make the renminbi’s exchange rate more flexible.

Still, the Chinese currency is “substantially undervalued” and its appreciation “is insufficient and more progress is needed,” the report noted. The Treasury Department will “press for policy changes that yield greater exchange rate flexibility” and “level the playing field.”

The currency report evaluates exchange rate policies of all major American trading partners. It was scheduled to be released on Oct. 15, but the administration delayed its release until after last month’s meetings.

Mitt Romney, a former Massachusetts governor and a leading candidate for the Republican presidential nomination, has criticized the administration for refusing to cite China for manipulating its currency. Mr. Romney said in October that, if elected, he would take that step on his first day in office. That could lead to trade sanctions against China.

Scott N. Paul, executive director of the Alliance for American Manufacturing, also questioned the decision. “I’m disappointed that President Obama has now formally refused six times to cite China for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs,” Mr. Paul said.

China has recently taken action that could result in the renminbi appreciating without prodding from the United States.

China and Japan agreed this week to accept the others’ currency when trading. Currently, they each convert their currency to dollars. That has made trade between the two Asian economic giants more expensive.

Article source: http://www.nytimes.com/2011/12/28/business/global/china-isnt-manipulating-currency-us-says.html?partner=rss&emc=rss

Senate Nears Approval of Measure to Punish China Over Currency Manipulation

After eight years, that campaign is on the verge of a breakthrough, as the Senate appeared ready Thursday to approve a get-tough approach that had stalled numerous times before: a bill to punish China with high tariffs on some exports if it fails to adopt a market-driven exchange rate.

Economists say China’s artificially cheap currency has cost the United States jobs and billions in lost trade. But opponents of tariffs, including major manufacturers doing business in China, warn that penalizing China could start a trade war that would hurt American businesses even more.

“We’re already in a trade war,” Senator Charles E. Schumer, the New York Democrat who has led the push for tariffs, said in an interview. “We can’t afford to just do nothing. This is a message to China that the jig is finally up.”

The American jobless problem have combined to give the tariff proposal newfound momentum, as the Senate spent much of the afternoon Thursday debating it.

Supporters, casting the measure as a way to spur job growth, were confident the Senate would approve it. Even the measure’s fiercest opponents were grudgingly predicting passage in the Senate, and probably the House.

But 11-hour resistance by leading Republicans has clouded the outcome in the House, where the speaker, John A. Boehner, this week called the tariff plan “dangerous,” and it is unclear if the issue will even come up for a House vote.

China itself voiced strong objections this week and charged that meddling by the United States in Chinese currency violated world trade protocols. The Chinese Embassy has retained one of Washington’s most powerful lobbying shops, Patton Boggs, to represent its interests for $420,000 a year.

Lobbyists for General Motors, Caterpillar, steel producers, textile manufacturers, toy makers, poultry farmers and other businesses have also weighed in, supporting or opposing the tariffs depending on their own business relations with China.

Generally, large manufacturers like Caterpillar that operate in China have opposed it, warning of a backlash. Smaller businesses, like a tube maker in Ohio or a ceramics maker in upstate New York, have supported tariffs because they say China has artificially lowered its prices and gained an unfair edge.

While the Chinese renminbi has risen 6 percent against the dollar since China loosened currency controls last year, economists say it is still vastly undervalued. Meanwhile, China’s trade surplus with the United States stands at $273 billion — more than triple the gap a decade earlier.

In Senate testimony this week, the Federal Reserve chairman, Ben S. Bernanke, went so far as to link China’s undervaluing of its currency to the slow economic recovery worldwide.

“The Chinese currency policy is blocking that process,” Mr. Bernanke testified. “And so it is to some extent hurting the recovery process.”

The Obama administration, however, has been noncommittal about the tariff proposal.

At a news conference on Thursday, President Obama would not say whether he would veto the bill it if it passed, but he raised concerns.

On the one hand, he said, “China has been very aggressive in gaming the trading system to its advantage,” and “it is indisputable that they intervene heavily in the currency markets.”

But he cautioned that he did not want to see the World Trade Organization strike down any steps the United States might take. “Then suddenly U.S. companies are subject to a whole bunch of sanctions,” Mr. Obama said.

Both supporters and opponents of the tariffs see the outcome as hugely significant financially and politically.

Article source: http://www.nytimes.com/2011/10/07/business/senate-nears-approval-of-measure-to-punish-china-over-currency-manipulation.html?partner=rss&emc=rss