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| Version 1 | Version 2 |
|---|---|
| China and US tone down trade spat | China and US tone down trade spat |
| (about 2 hours later) | |
| US Treasury Secretary Tim Geithner and a Chinese counterpart have attempted to calm trade tensions at an Asia-Pacific finance ministers' meeting in Japan. | US Treasury Secretary Tim Geithner and a Chinese counterpart have attempted to calm trade tensions at an Asia-Pacific finance ministers' meeting in Japan. |
| Mr Geithner dropped an earlier call for G20 countries to adopt a target to reduce their economic imbalances to less than 4% of their output. | Mr Geithner dropped an earlier call for G20 countries to adopt a target to reduce their economic imbalances to less than 4% of their output. |
| The policy was seen as targeting China's substantial trade surplus. | The policy was seen as targeting China's substantial trade surplus. |
| Meanwhile, China's vice finance minister, Wang Jun, supported the US Federal Reserve's quantitative easing. | Meanwhile, China's vice finance minister, Wang Jun, supported the US Federal Reserve's quantitative easing. |
| He said the move would help to boost economic growth in the US, which is important to the global recovery. | He said the move would help to boost economic growth in the US, which is important to the global recovery. |
| Mr Geithner said the US only wanted "indicative guidelines" for current account imbalances, but added that "it's not something that can reduce easily to a single number". | |
| At a G20 meeting of finance ministers in Korea last month, Mr Geithner advocated that G20 countries should aim for 4% of economic output as a "benchmark for the future" for such trade imbalances. | |
| China's current account surplus is currently 5% of its gross domestic product. | |
| Defending the Fed | Defending the Fed |
| Mr Wang's comments came in contrast to the criticism that has been thrown at the US central bank by many other developing countries, as well as some of Mr Wang's own colleagues. | |
| On Monday, another Chinese vice finance minister - Zhu Guangyao - said the decision to print $600bn more cash would destabilise world markets. | |
| "[It] does not recognise, as a country that issues one of the world's major reserve currencies, its obligation to stabilise capital markets," said the minister speaking at a press conference. | |
| "Nor does it take into consideration the impact of this excessive fluidity on the financial markets of emerging currencies." | |
| And a Chinese state newspaper - the People's Daily - published a front page opinion piece in its international edition claiming that quantitative easing amounted to currency manipulation - a charge often levelled by US politicians at China - and would lead to a currency war and global economic collapse. | |
| Responding to the criticism, US President Barack Obama came out in support of the Federal Reserve's move. | Responding to the criticism, US President Barack Obama came out in support of the Federal Reserve's move. |
| "The Fed's mandate, my mandate is to grow our economy," he said, speaking on Monday during a state visit to India. "That is not just good for the United States, that is good for the world as a whole." | "The Fed's mandate, my mandate is to grow our economy," he said, speaking on Monday during a state visit to India. "That is not just good for the United States, that is good for the world as a whole." |
| Hot money | |
| At the heard of the dispute are the differing economic fortunes of the US and of Asian exporters. | |
| The Federal Reserve wants to print more dollars in order to reignite the US's flagging recovery, as unemployment remains stuck near 10% and inflation threatens to become negative. | |
| A major drag on the US recovery is its continuing trade deficit - meaning that foreign exporters like China benefit disproportionately from expanding US demand. | |
| China and other exporter countries buy up US dollars to hold as currency reserves. But this tends to push the dollar's value up, perpetuating the US trade deficit. | |
| The Fed's quantitative easing policy is likely to depress the value of the US dollar, making US exporters more competitive at the expense of foreign exporters. | |
| But the move may also encourage speculators to borrow in dollars and invest in higher growth developing countries. | |
| And the developing countries fear that such "hot money" inflows will lead to destabilising asset bubbles and financial crisis, as occurred in the 1990s. | |
| Gold standard | |
| One solution - proposed by World Bank President Robert Zoellick in the Financial Times on Monday - is to return to a modern version of the gold standard. | |
| Unlike the original gold standard - abandoned during the Great Depression of the 1930s - he does not advocate rigidly fixing the value of currencies against the price of gold. | |
| Many economists believe the original gold standard worsened the depression in countries that clung to it, as it prevented them from increasing the supply of paper money in exactly the way that the Federal Reserve has just done. | |
| Instead, Mr Zoellick suggested that a future system of flexible exchange rates should reference gold - instead of the US dollar - as a common point of valuation. | |
| The implication is that countries like China would have to rely much less on buying US dollars, and more on buying gold and other currencies, to build up their reserves. | |
| Mr Zoellick also called for countries to liberalise the capital accounts. China severely restricts financial investments in the yuan, in order to help it control its exchange rate and block hot money inflows. | |
| Free trade area | Free trade area |
| Mr Geithner and Mr Wang were speaking at a meeting of finance ministers from the countries of the Asia-Pacific Economic Co-operation (Apec) forum at Kyoto in Japan. | Mr Geithner and Mr Wang were speaking at a meeting of finance ministers from the countries of the Asia-Pacific Economic Co-operation (Apec) forum at Kyoto in Japan. |
| The 21 Apec finance ministers agreed in a communique that countries would "move towards more market-determined exchange rate systems that reflect underlying economic fundamentals and will refrain from competitive devaluation of currencies". | The 21 Apec finance ministers agreed in a communique that countries would "move towards more market-determined exchange rate systems that reflect underlying economic fundamentals and will refrain from competitive devaluation of currencies". |
| The ministers also advocated the long-term aim of creating a free trade area to replace the more than 100 bilateral and mini free-trade-area agreements already signed amongst them. | The ministers also advocated the long-term aim of creating a free trade area to replace the more than 100 bilateral and mini free-trade-area agreements already signed amongst them. |
| "Rather than doing bilaterally or with a small number of countries, free trade deals work better when more countries get involved," said Haruhiko Kuroda, president of the Asian Development Bank. | "Rather than doing bilaterally or with a small number of countries, free trade deals work better when more countries get involved," said Haruhiko Kuroda, president of the Asian Development Bank. |
| Apec countries account for 53% of global economic output, and 44% of global trade. Apec heads of government will hold a summit this weekend. | Apec countries account for 53% of global economic output, and 44% of global trade. Apec heads of government will hold a summit this weekend. |