What Obama expects from China

One might see it as sheer coincidence that the US Treasury Department was scheduled to release a currency report in which China would be accused as a currency manipulator on the same day when China's Communist Party leaders meet to discuss the country's next five-year plan. But Treasury Secretary Timothy Geithner, again, decided to delay the release.

The U.S. Treasury Department said it will delay a report on international currencies, including China's, while citing progress in the acceleration of the yuan's rise.

The report will be delayed until after meetings of the Group of 20 nations in the coming weeks, according to a statement from the Treasury today.

Treasury Secretary Timothy F. Geithner "recognized China's actions since early September to accelerate the pace of currency appreciation, while noting it is important to sustain this course," according to the statement.

Geithner has increased pressure on China to allow the yuan to strengthen, saying last week the nation is contributing to a "damaging dynamic" of countries keeping their currencies weak to spur exports. Record imports from China are fueling calls by U.S. lawmakers for action to protect American jobs as next month's elections approach.

China's yuan has surged by about 2.8% from late July so far. Geithner's message is absolutely clear: we need more. You, China, appreciate the currency much more till the coming big events. At this point, time schedule is important. According to the Treasury statement,

The Heads of State, finance ministers, and central bank governors of the G-20 and the Asia-Pacific region will participate in several important meetings over the coming weeks. These meetings provide an opportunity to make additional progress on the important challenge of securing stronger and more balanced growth.

The Treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings. 

Hmm, let's check out the schedule.

The Treasury statement shown above implies that the G20 meeting, be it Finance Ministers' or Summit, is important for both the US and the world. But it's no doubt that Obama's priority lies in the US midterm election held in 2 November, which the Democrats are on the brink of losing amid increasing frustration for the administration's economic policy among the public. So, the de facto deadline must be 2 November.

China's Central Party Committee meeting runs through 15 to 18 October. Its main theme is to approve a new 5-year plan for the country. BBC explains:

The ruling CPC is expected to endorse a new economic model of "inclusive growth", a model that stresses not just on GDP growth at any cost, but on balanced development across the different sections of the society and different geographic regions.

A widening wealth gap is fuelling social tensions and threatening the power of the CPC.

So the conference will be discussing improved income redistribution and social reform. At the same time, international pressure is mounting for China to stimulate its domestic consumption rather than relying on exports.

The meeting is also expected to confirm Xi Jinping as the vice-chairman of the party's Central Military Commission, paving the way for him to succeed Hu Jintao as the next leader of China in 2012.

To achieve balanced economic growth, China might endorse another round of yuan's appreciation, which I think the Obama administration expects. We'll see next week.