Congress Yuan Action May Spark China Treasuries Sale, Roach Says
September 10, 2010, 3:38 AM EDT
By Bloomberg News
Sept. 10 (Bloomberg) -- President Barack Obama may be pressured by election-year politics to sign legislation aimed at China’s currency, sparking retaliation that could include Chinese selling of U.S. Treasuries, Morgan Stanley Asia Chairman Stephen Roach said.
The U.S. House Ways and Means Committee is set to hold hearings on one such bill next week that might levy trade sanctions against China and other nations found to undervalue their currencies. There is a similar measure in the Senate. Last year China had a $226.8 billion trade surplus with the U.S., according to U.S. Commerce Department data.
Facing the possible loss of both houses in mid-term elections in November, Obama may see no choice but to sign legislation if Congress sends him a bill, Roach said in an interview. That would lead China to retaliate with its own measures and may even trigger sales of Treasuries by the biggest foreign holder of U.S. government debt, and a subsequent rise in U.S. interest rates, Roach said.
“If there is a bipartisan bill that works its way through Congress, I do not see this president vetoing it,” Roach said. “But given the possibility of where he stands in losing the House and possibly even the Senate, if that bill were to hit his desk before the election, I think there’s a good chance he would allow it to become law.”
“That would be a huge mistake,” Roach said.
U.S. Loses
Trade tensions between the world’s two largest economies won’t solve the high U.S. unemployment rate, the high federal budget deficit and low household savings rates, Roach said. A trade war would only hurt the U.S., he said. China held $843.7 billion of Treasuries as of the end of June.
Treasury Secretary Timothy F. Geithner said Sept. 8 that China must let the yuan rise more quickly, following a June announcement by the People’s Bank of China pledging more flexibility.
“Frankly they haven’t let the currency move very much so far,” Geithner said in an interview on Bloomberg Television in Washington. “They know they’re just at the beginning of that process and I think we’d like to see them move more quickly.”
China’s Foreign Ministry Spokeswoman Jiang Yu reiterated on Sept. 7 that China won’t change its currency policy based on foreign pressure.
The yuan rose 0.23 percent to 6.7673 per dollar as of 3:40 p.m. in Shanghai, bringing its weekly gain to 0.55 percent, according to the China Foreign Exchange Trade System. That was the biggest appreciation since the week ended June 25.
September 10, 2010, 3:38 AM EDT
By Bloomberg News
Sept. 10 (Bloomberg) -- President Barack Obama may be pressured by election-year politics to sign legislation aimed at China’s currency, sparking retaliation that could include Chinese selling of U.S. Treasuries, Morgan Stanley Asia Chairman Stephen Roach said.
The U.S. House Ways and Means Committee is set to hold hearings on one such bill next week that might levy trade sanctions against China and other nations found to undervalue their currencies. There is a similar measure in the Senate. Last year China had a $226.8 billion trade surplus with the U.S., according to U.S. Commerce Department data.
Facing the possible loss of both houses in mid-term elections in November, Obama may see no choice but to sign legislation if Congress sends him a bill, Roach said in an interview. That would lead China to retaliate with its own measures and may even trigger sales of Treasuries by the biggest foreign holder of U.S. government debt, and a subsequent rise in U.S. interest rates, Roach said.
“If there is a bipartisan bill that works its way through Congress, I do not see this president vetoing it,” Roach said. “But given the possibility of where he stands in losing the House and possibly even the Senate, if that bill were to hit his desk before the election, I think there’s a good chance he would allow it to become law.”
“That would be a huge mistake,” Roach said.
U.S. Loses
Trade tensions between the world’s two largest economies won’t solve the high U.S. unemployment rate, the high federal budget deficit and low household savings rates, Roach said. A trade war would only hurt the U.S., he said. China held $843.7 billion of Treasuries as of the end of June.
Treasury Secretary Timothy F. Geithner said Sept. 8 that China must let the yuan rise more quickly, following a June announcement by the People’s Bank of China pledging more flexibility.
“Frankly they haven’t let the currency move very much so far,” Geithner said in an interview on Bloomberg Television in Washington. “They know they’re just at the beginning of that process and I think we’d like to see them move more quickly.”
China’s Foreign Ministry Spokeswoman Jiang Yu reiterated on Sept. 7 that China won’t change its currency policy based on foreign pressure.
The yuan rose 0.23 percent to 6.7673 per dollar as of 3:40 p.m. in Shanghai, bringing its weekly gain to 0.55 percent, according to the China Foreign Exchange Trade System. That was the biggest appreciation since the week ended June 25.