Geithner Goes To China With “Olive Branch” (MS)

Bloomberg reports that Timothy F. Geithner, the U.S. Treasury Secretary, went on an unscheduled trip to China at the time when China is seen to be weighing its options on letting its currency appreciate. Treasury spokesman Andrew Williams told reporters in Mumbai that Geithner left India for a closed-door meeting with Chinese Vice Premier Wang Qishan in Beijing today. Williams said that Geithner’s meeting with Wang Qishan was only confirmed two days ago. “The secretary and the vice premier have been working together to find an opportunity to meet in person for some time,” he said.

Wang Qishan is in charge of trade and financial affairs and, with State Council member Dai Bingguo, he led China’s delegation at the Strategic and Economic Dialogue talks with the U.S. There is a pressing demand from Congress for Geithner to label China as a currency manipulator for keeping the value of the yuan at about 6.8 to the dollar, which gives an unfair advantage to Chinese exporters. Geithner’s trip comes four days after he postponed the April 15 deadline for a semiannual review of the currency policies of major U.S. trading partners. Stephen Roach, the chairman of Morgan Stanley Asia Ltd. (NYSE: MS), said in a Bloomberg Television interview yesterday, “The U.S. administration was understandably concerned that we were headed toward a very slippery slope. If we had held to the April 15 deadline, and gone out with a currency manipulation verdict on China, that could have unleashed a very dangerous chain of events.” Roach said that Geithner’s visit to Beijing is a “very encouraging” development that offers an “olive branch” to China ahead of a series of meetings.

Chinese President Hu Jintao is scheduled to visit Washington next week for talks with President Barack Obama, and the U.S. and China also are headed toward their annual bilateral economic meetings in May. Citing unidentified people with knowledge of the issue, today the New York Times reported that China may announce a revision of its currency policy within days with a small, one-time jump in the yuan, which would then be allowed to trade in a greater range against the dollar. Xia Bin, an adviser to the People’s Bank of China, said at a forum in Shanghai today, “My personal opinion is that a one-time big appreciation in the yuan would have limited benefit to the U.S., the world, and China. The yuan’s exchange rate should go back to the pre-crisis managed float mechanism as soon as possible.”

The Chinese government has been reluctant to end the currency peg on concern about the durability of the recovery in the world economy. Central bank Governor Zhou had said in a March 23 interview that officials want to ensure the world isn’t going through a “W-shaped recovery,” with a renewed slowdown coming after the current rebound.