World Bank's Zoellick: China Action Needed

2005/7/22 #896570: Hand holds Chinese 100 Renminbi banknotes, with RMB sign, on China flag, partial graphic
AP
A stronger Chinese currency would be appropriate and help Beijing to increase domestic spending and reduce reliance on exports as its driver of growth, World Bank president Robert Zoellick said Wednesday.

China faces rising pressure from Washington and other governments to ease exchange-rate controls that they say distort trade. Beijing promised more flexibility in June but its currency, the yuan, has risen by only about 1 percent since then against the dollar, and some American lawmakers are pushing for sanctions on Beijing.

Zoellick said a stronger yuan would help with the "core issue" of increasing the spending of businesses and ordinary Chinese by making imported goods cheaper, which he said he discussed with Chinese leaders during his six-day visit.

"The appreciation of the renminbi would send a price signal that would reinforce the direction of these structural changes," Zoellick said at a news conference, referring to the currency by its official name.

"It would be appropriate to have an appreciation of the currency. But my point is it's not a panacea," he said. "The structural issues are the fundamental issues that have to be addressed."

Beijing allowed the yuan to rise to a new high against the dollar on Monday in a possible attempt to cool tempers in Washington. But financial analysts say the move might be too late to mollify U.S. critics who say China's controls are swelling its trade surplus and hurting American exporters.

On Monday, U.S. Treasury Secretary Timothy Geithner was quoted by The Wall Street Journal as saying Beijing had done "very, very little" to allow the yuan to rise since June.

Turning to the global economy, Zoellick said a "double dip" recession in the United States is unlikely but U.S. and European growth will be slow and U.S. unemployment high.

"I suspect that the U.S. economy will have a relatively slow growth recovery. Unfortunately, unemployment will likely remain relatively high," he said. "And while the prospects in Europe have gotten slightly better, over the past few weeks again I think that's a slow growth picture. So I think it's a very uncertain recovery."