That was before the global recession. Now the US wants even greater appreciation but as I have noted in this blog on numerous occasions, China cares about jobs more than any other economic issue.
To protect jobs means a depreciation of the currency. This would not go down well in the US as Paulson recently warned. The FT reports:
Paulson urges China not to curb currency [FT]
The US urged China on Friday not to “roll back” the appreciation of its currency that has taken place over the last two years to prevent an even sharper economic slowdown.
Hank Paulson, Treasury secretary, said that the main reason for job losses among Chinese exporters was slowing global demand, not currency appreciation.
“Some people in China, looking at the slowing global economy and seeing what is happening to exports, might blame it on currency appreciation and seek to roll that back,” he said in Beijing. “China understands, as do we, how important currency reform is to rebalancing growth in China.
Mr Paulson was speaking at the end of the two-day strategic economic dialogue, a bi-annual meeting of US and Chinese ministers and officials. The meeting has been accompanied, after a relatively large drop in the renminbi earlier this week, by considerable speculation the Chinese central bank is weakening the currency against the dollar to help exporters.
The two governments warned against the danger of increased protectionism and pledged to boost co-operation to deal with the global financial crisis, promising to make $20bn of trade finance credit available to developing countries struggling to pay for US and Chinese exports.
Mr Paulson said the fiscal stimulus package announced by the Chinese government was “very welcome”. “The Chinese leadership is very focused on what is happening here and will do whatever it takes to maintain growth,” he said.
Chinese officials restated concerns about their heavy exposure to US public debt. Asked about China’s plans for future purchases of US Treasury bonds, Zhu Guangyao, China’s assistant finance minister, said: “We hope the US side will seriously consider China’s concerns and protect the interests of Chinese investors.”
Mr Paulson played down the risks of foreign governments selling out their holdings. ”It is a fact that China is an investor in US securities,” he said. “I do not see any countries with holdings so large that I view it as a threat.”
Both sides said it was important to continue the dialogues, which started in 2006, after the Obama administration is sworn in. “Ideas that work generally do not die,” said Mr Paulson, who before the financial crisis took hold had made relations with China one of his priorities.
Mr Zhu said President-elect Barack Obama had spoken on the phone with Chinese President Hu Jintao and emphasised his willingness to ”further strengthen constructive relations between China and the United States”.
The renminbi appreciated modestly on Friday as speculation about a shift in currency policy receded. Chen Deming, China’s commerce minister, said the recent weakening of the currency against the dollar was not aimed at helping exporters.
Economists said China was highly unlikely to push for a significant depreciation of its currency because of the trade tensions this would invite. However, if the dollar were to continue strengthening, China might slowly weaken the renminbi against the US currency to avoid excessive appreciation against the currencies of other main trading partners.