Economy

China rejects trade surplus proposals

By Wang Xiaotian and Wang Bo (China Daily)
Updated: 2010-11-06 09:23

Govt official warns of risks from quantitative easing monetary policy

BEIJING - China on Friday dismissed a US proposal to shrink current account gaps, saying it is "not an appropriate topic" at the upcoming G20 Seoul summit, and warned of risks posed by the US monetary easing policy.

"We hope to see more balanced current accounts, but it may not be a good approach to single out this issue and put too much attention on it," Cui Tiankai, vice-foreign minister, told reporters at a news briefing in Beijing.

Cui was referring to an October proposal by the US Treasury Secretary Timothy Geithner to limit the surpluses and deficits on the current account - a broad measure of a country's foreign trade - to 4 percent of GDP.

The idea of setting numerical targets would only remind us of "the planned economy", Cui said. He also rejected any attempt by other countries to set specific ranges for yuan appreciation.

Leaders of the world's major economies will gather in Seoul for the G20 summit between Nov 11 and 12, with discussions on rebalancing the global economy and easing currency tensions high on the agenda.

"China is likely to shrink its trade surplus to below 3 percent of its GDP in the next three years, from the pre-crisis level of nearly 10 percent," Li Daokui, an academic member of the monetary policy committee of the People's Bank of China, said.

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Cui also expressed concern about a new round of US quantitative easing saying it will inject too much liquidity into international markets. The US Federal Reserve on Wednesday announced plans to buy $600 billion government bonds in an attempt to bolster the struggling economy.

Zhou Xiaochuan, China's central bank governor, said on Friday that he is confident that the country can manage the capital inflow risks posed by US quantitative-easing policies.

"For its influence on China, our foreign exchange system still contains management for capital inflows. We have solid measures to avoid abnormal inflows, which cannot get in, or have to take the bypass," Zhou said.

He said the country would probably hedge the risks from such inflows by controlling the gross quantity - confining the money in a pool to avoid its effects from spreading out to the whole domestic liquidity. "When the capital starts to drain out, we just let it go."

Zhou said speculative capital cannot be avoided and the most important thing for China is to maintain its macroeconomic balance. "We should keep an eye on the capital inflows, but we need to remember that it is impossible to shut the door completely."

However, with China's consumer inflation rising to 3.6 percent in September and the stock market rebounding over 30 percent from its July low, keeping inflation under control and curbing asset bubble risks has become an immediate concern for the government.