China, US closer to G20 deal on trade imbalances: report

South Korean special police officers guard near the symbol of G20 at Gimpo Airport in Seoul, South Korea, Monday, Oct. 25, 2010. – AP Photo

BEIJING: China and the United States have reached the basis for an agreement at next month’s Group of 20 summit on setting targets to rein in global trade imbalances, a report said Wednesday.

The Financial Times quoted Li Daokui, an adviser to China’s central bank, saying G20 finance chiefs had made “good progress” towards a deal at their meeting in South Korea at the weekend.

“I was very encouraged by the G20 meeting,” Li told the newspaper in an interview. “It is now possible for the two governments (the US and China) and other governments to have a good understanding.”In a statement the G20 finance ministers agreed to “refrain from competitive devaluation of currencies” and aim for “more market-determined exchange rate systems”.


South Korea’s Yoon Jeung-Hyun said that pledge had laid to rest fears of a damaging “currency war” between struggling debtors such as the United States and export powerhouses such as China.

G20 ministers also vowed to “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels”.

US Treasury Secretary Timothy Geithner had suggested in Gyeongju that G20 members assign a specific limit for their current account surplus or deficit — four percent of gross domestic product.

But India is not as keen on the idea of specific targets, with Finance Minister Pranab Mukherjee telling the FT that the G20 should look to devise a “formula based on country-specific solutions”, not a numerical “straitjacket”.

Mukherjee said any broad guidelines to level out deficits and surpluses could threaten the “normal” functioning of the global economy.

No statistical objective was given in the final G20 statement.

Targeting China’s hefty current account surplus would be an indirect way for Washington to cajole Beijing into relaxing its grip on the yuan and allow the currency to appreciate — a move demanded by its key trading partners.

Li said China “should not be afraid of numerical targets for reducing its trade surplus,” suggesting Beijing could support Geithner’s approach.

“China is well positioned politically and economically to make this adjustment,” he added.
Geithner met China’s vice premier Wang Qishan in the Chinese coastal city of Qingdao following the Gyeongju meeting — a sign that the two sides are looking to forge a compromise ahead of the G20 summit in Seoul on November 11-12. – AFP