G20 refuses to back US push on China's currency

Leaders of 20 major economies last Friday refused to back a United States push to make China boost its currency's value, keeping alive a dispute that raises fears of a global trade war amid criticism that cheap Chinese exports are costing American jobs.

A joint statement issued by the leaders including President Barack Obama and China's Hu Jintao tried to recreate the unity that was evident when the Group of 20 rich and developing nations held its first summit two years ago during the global financial meltdown.

But deep divisions, especially over the US-China currency dispute, left G20 officials negotiating all night to draft a watered-down statement for the leaders to endorse.

"Instead of hitting home runs sometimes we're gonna hit singles. But they're really important singles," Obama told a news conference after the summit.

Other leaders also tried to portray the summit as a success, pointing to their pledges to fight protectionism and develop guidelines next year that will measure the imbalances between trade-surplus and trade-deficit countries.

The G20's failure to adopt the US stand has underlined Washington's reduced influence on the international stage, especially on economic matters. In another setback, Obama also failed to conclude a free-trade agreement this week with South Korea.

The biggest disappointment for the United States was the pledge by the leaders to refrain from "competitive devaluation" of currencies.

Such a statement is of little consequence since countries usually only devalue their currencies - making it less worth against the dollar - in extreme situations like a severe financial crisis.

The statement decided against using a slightly different wording favoured by the US - "competitive under-valuation," which would have shown the G20 taking a stronger stance on China's currency policy.

The crux of the dispute is Washington's allegations that Beijing is artificially keeping its currency, the yuan, weak to gain a trade advantage.

US business lobbies say that a cheaper yuan costs American jobs because production moves to China to take advantage of low labour costs and undervalued currency.

A stronger yuan would shrink the US trade deficit with China, which is on track this year to match its 2008 record of $268 billion, and encourage Chinese companies to sell more to their own consumers rather than rely so much on the US and others to buy low-priced Chinese goods.

But the US position has been undermined by its own central bank's decision to print $600 billion to boost a sluggish economy, which is weakening the dollar.

Also, developing countries like Thailand and Indonesia fear that much of the "hot" money will flood their markets, where returns are higher. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.

Obama said China's currency policy is an "irritant" not just for the United States, but for many of its other trading partners.

protectionist policies

The G20 countries - ranging from industrialised nations such as the US and Germany, to developing ones like China, Brazil and India - account for 85 per cent of the world's economic activity.

"China spends enormous amounts of money intervening in the market to keep it undervalued so what we have said is it is important for China in a gradual fashion to transition to a market-based system," Obama said.

The dispute is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession.

The possibility of a currency war "absolutely" remains, said Brazilian Finance Minister Guido Mantega.

Last Friday's statement is also unlikely to resolve the most vexing problem facing the G20 members: how to fix a global economy that has long been marked by huge US trade deficits with exporters like China, Germany, and Japan.

Americans consume far more in foreign goods and services from these countries than they sell abroad.

The G20 leaders said they would try to reduce the gaps between nations running large trade surpluses and those running deficits.

The "persistently large imbalances" in current accounts - a broad measure of a nation's trade and investment with the rest of the world - would be measured by

Brazil's Finance Minister Guido Mantega answers reporters questions during a press conference for the G20 Summit in Seoul, South Korea, last Friday.

PLEASE SEE g20, c11