The current drama began on March 6 when the governor of China’s central bank stunned analysts by saying that the bank’s policy of keeping the renminbi at a constant exchange rate against the dollar was a “special” response to the global financial crisis.
The new description suggested to many economists that the current value of the renminbi was temporary and that the central banker, Zhou Xiaochuan, was preparing the Chinese public for a stronger renminbi.
But other Chinese officials, particularly at the Commerce Ministry, have fought back in the last two weeks, stoking nationalism and anti-American sentiment by loudly declaring that China would not be told what to do by the United States.
“It seems like they are talking from different perspectives,” said Li Wei, the director of the American studies department at the Chinese Academy of International Trade and Economic Cooperation, speaking of the Chinese officials. He added that he supported the Chinese government’s overall stance of resisting American pressure.
The debate is far from academic. In the coming weeks, the Obama administration faces a series of politically charged deadlines set by Congress to decide whether to continue negotiating with China over currency and trade issues or to take a more confrontational stance and name China a currency manipulator.
If the administration labels China a currency manipulator, it would face further Congressional pressure to impose punitive tariffs on many Chinese goods.
So far, the media-wise Commerce Ministry is trouncing the normally secretive central bank.
Every few days, senior Commerce Ministry officials have spoken out, warning that pressure to let the renminbi rise is “irrational.” The ministry is close to exporters, who are still upset that shipments fell early last year for the first time since China began opening trade in the late 1970s. China’s overall trade surplus was $198.1 billion last year, down from $297.4 billion the year before as global trade shrank during the financial crisis.
The ministry has even taken its campaign to Washington, with Zhong Shan, the deputy minister, giving a speech at the United States Chamber of Commerce on Wednesday morning and telling reporters at the Chinese Embassy on Wednesday afternoon that American pressure for a stronger renminbi “is unacceptable to China.”
These comments have raised a surge of anti-American sentiment in Internet chat rooms and prompted daily headlines on the front pages of Chinese newspapers that China must not “back down.”
Borrowing a page from the playbook of some of the most sophisticated Western crisis management consultants, the ministry even sent to reporters last week the private cellphone numbers of eight Chinese academic experts on Sino-American trade relations. But unlike the Western consultants, the ministry did not ask or warn the academics before giving out their phone numbers.
Some Chinese economists gingerly suggested in the past year that China could find better uses for the hundreds of billions of dollars it spends buying United States Treasuries and other foreign securities to keep the renminbi from rising against the dollar.
That investment in overseas bonds was equal to nearly a tenth of China’s entire economic output last year, even though Treasuries have a return of only 0.13 to 4.76 percent currently. If the renminbi does appreciate eventually, the value of China’s vast foreign reserves will plunge in renminbi terms — a loss for which the central bank would likely be blamed.
Maintaining the current level of the renminbi also means the central bank cannot easily push up interest rates — a move countries normally use to battle inflation.
That may be necessary in China. The economy here is doing so well and China international competitiveness is so strong that inflation is starting to appear. Exporters have more orders than they can fill — although imports have been rising even faster as Chinese companies have stockpiled commodities as a hedge against inflation.
Export-oriented provinces in coastal China raised their minimum wages by 20 percent last week in a desperate bid to attract more workers from China’s increasingly prosperous interior to run factory assembly lines.
These problems have made the central bank unenthusiastic about selling renminbi and buying foreign bonds so as to hold down the value of the currency, people close to the central bank said. But the bank has been reluctant to make its case in public, consistently rebuffing requests for interviews, and now may have missed its chance as the increasingly free Chinese business press has embraced the weak renminbi as a nationalistic symbol of Chinese sovereignty.
In many policy discussions between the United States and China over the past two decades, the Chinese government has seemed to maintain a laserlike focus. American officials in a succession of administrations and Congresses have been more like flashlights pointing in different directions at night.
But in the current debate, American officials have been tightly disciplined — the Treasury, Commerce Department and Office of the United States Trade Representative have said little. Chinese officials, on the other hand, have been vocal and less consistent.
In the United States, the Treasury — and often only the Treasury secretary himself — comments on the dollar. That has helped limit sudden fluctuations in the dollar’s value in currency markets.
But China has no such policy limiting which agencies or individuals can publicly address currency issues. For decades, currency policy has been the purview of the central bank, but the central bank is a politically weak institution. The People’s Bank of China is simply one of many economic policy ministries and even lacks independent authority over monetary policy, unlike the Federal Reserve.
Commerce Ministry officials say that they are following a broader trend in the Chinese government of greater responsiveness to the public. “Our ministry is doing a good job to be more open and more transparent — there is even an office in our ministry responsible for publicizing our policies,” said Chen Rongkai, the ministry’s division director for press.
Sewell Chan contributed reporting from Washington.