Appreciation of Chinese Currency, a Major Issue in Upcoming Talks

Will `the foreign exchange war` proceed in full swing?

Tensions are intensifying among countries in the run up to the G7 finance ministers and central bank governors` conference scheduled on September 20

Although the subject of the conference is ways to boost the global economy after the Iraqi war, foreign media say the major issue of the meeting would be China`s adoption of flexible foreign exchange rate system and the appreciation of the Chinese national currency.

The Japanese government`s injection of 10 trillion Yen (about 100 trillion won) into its capital market to prop up the Yen could also be criticized as `an artificial manipulation of foreign exchange rates.` During the upcoming conference, the U.S. and the E.U. are expected to put their Japanese and Chinese counterparts on the defensive.

The U.S. Finance Secretary John Snow, who raised the issue of low valuation of the Chinese currency during his visit to East Asia early this month, is expected to call on the Chinese government for the adoption of `a flexible FX policy` while strengthening an international alliance against China over the issue.

With the American unemployment rate hovering over 6% in the run up to the next year`s presidential election, the Bush administration needs to meet the needs of the nation`s manufacturing businesses and labor unions. Therefore, the American finance secretary is set to strongly push ahead with his government`s position.

European countries also view the Chinese government`s exiting FX policy as a new form of protectionism. They also criticize Japan saying, ˝The appreciation of the Yen is natural considering the gradual recovery of the Japanese economy.˝

As Japan is branded as `a FX rate-manipulating country,` the nation has stopped attacking China. The Japanese media reported that there could be a last minute compromise between G7 and China over the appreciation of the Chinese currency since G7 talks and the International Monetary Fund-World Bank general meeting are held simultaneously.

parkwj@donga.com