The first public signs appeared today that the weaker euro could lead to a delay in China abandoning its dollar peg. Yao Jian, a spokesman for the Chinese commerce ministry, said at a briefing that the Chinese currency has already appreciated significantly in recent months as a result of the weaker euro, which will hurt China’s exporters.
“The renminbi has risen about 14.5 per cent against the euro during the past four months, which will increase cost pressures for Chinese exporters and have a negative impact on China’s exports to European countries,” he said.
He did not actually link the weaker euro to the debate about China’s dollar peg, which has been in place since mid-2008. But it is no secret that the commerce ministry has been working hard behind the scenes – and occasionally in public – to oppose any strengthening in the Chinese currency.
It is pretty likely that the ministry has been making the very same points as Mr Yao in private, with much more force. And given the reluctance of China’s leaders to make big decisions during periods of uncertainty, investors have scaled back expectations for Chinese appreciation against the dollar.
In economic terms, Mr Yao is correct. As Europe is China’s biggest export market, a weaker euro means that the renminbi is appreciating against a basket of currencies of China’s trading partners. But the political implications of a delay are less clear.
When Tim Geithner, who will be in Beijing for talks with senior Chinese leaders next week, delayed the publication of a Treasury report on whether China manipulates its currency, the assumption was that Beijing had two or three months to make a move that had already been decided in principle.
But if the summer comes and China is still pegged to the dollar, political tensions between the US and China could start to rise again.
