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Bonds, yuan on financial agenda
Mark Hollands for CNN
(CNN) -- Progress on foreign exchange rate policies and an Asian bond market are expected to be the two key financial issues for the Asia-Pacific Economic Co-Operation (APEC) forum in Bangkok from October 19-21. The United States is likely to use the gathering of 21 world leaders and their foreign and trade ministers to pursue its determination to convince China to float and revalue its currency, the yuan (renminbi). US Treasury Secretary John Snow has pushed China to be more "flexible" on the yuan, which has been pegged at 8.28 to the U.S. dollar since 1994. The United States, together with Japan and South Korea, say the yuan's artificially low value gives it an unfair competitive advantage that allows it to attract investment in production plants, forcing neighboring Asian countries to layoff their own workers as a result. The currency issue is a fundamental pillar of China's economic success. To the end of July, the value of its annual exports increased by 33.4 per cent to $228.4 billion. Its import performance – a 42.9 per cent improvement to $222.3 billion – undermines the American argument. A change in Beijing's policy would likely increase its value by 15 to 40 per cent, according to some finance experts. However, China has rejected the U.S. demand, saying the exchange rate is "appropriate", winning widespread support for its position. A recent meeting of APEC finance ministers issued a joint communique saying "there is no single exchange rate regime that suits all economies at all times". Australian Treasurer Peter Costello predicted there would be "quite a deal of discussion at the APEC meeting on exchange rates and particularly the (yuan) / US dollar exchange rate". He told a recent press gathering: "This is going to be a source of concern in the U.S.-China relationship. China is running such a trade surplus with the United States -- and doing it on a fixed exchange rate." The value of the Australian currency against the U.S. dollar has increased by up to 18 per cent this year, as the American currency slides in value against key currencies, making US exports cheaper and its imports more expensive. Dr Christopher Findlay, Director of the Infrastructure Management Program at the Australian National University's Asia Pacific School of Economics and Government, is skeptical about the U.S. approach. "The best way for China to respond to the U.S. demands is to push ahead with liberalization," he said. "This will have a similar effect on the demand for the yuan. Politically in America, though, it is a really neat thing to talk about." APEC trade and finance ministers, who will meet on the sidelines of the APEC forum, will also discuss the logistics of establishing an Asian Bond Fund. Central banks in the Asia-Pacific region launched a $1 billion pool of foreign reserves to create the fund on June 11. The banks, which hold more than $1 trillion in foreign exchange reserves, aim to encourage investors to retain their funds in a regional bond market, rather than seek investment in the United States or Europe. Trade and finance ministers also recently agreed to a new APEC initiative to promote small and medium-size business. Nine countries -- China, Japan, Hong Kong, Malaysia, South Korea, Singapore, Taiwan, Thailand and Vietnam – have signed a memorandum of understanding to co-operate on SME issues such as debt and equity finance. The agreement is seen an important part of APEC's overall goal – the creation of free trade by 2010 between members with mature economies, and then between the emerging economies by 2020.
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