*NEWS*U.S. WARNS CHINA OVER CURRENCY

[Anonymous]

White House Warns China to Reform Its Currency

WASHINGTON (May 05) – The Bush administration is
intensifying pressure on China to revamp a currency system that critics blame
for America’s swollen trade deficit and the loss of U.S. factory jobs.

But it stopped short of branding the country a manipulator
of currency, a move that could lead to economic sanctions.

That disappointed manufacturers, some Democratic and
Republican lawmakers and others who contend China is intentionally keeping its
currency artificially low to give Chinese companies a competitive edge in
international trade.

The Treasury Department, however, as part of its
twice-a-year report to Congress, warned China on Tuesday that it could be cited
as a currency manipulator and face economic sanctions unless it moves swiftly to
overhaul its currency policies.

“They went right up to the door, but didn’t knock,” Sen.
Charles Schumer, D-N.Y., complained in an interview. “Congress doesn’t want any
more talk, it wants action.”

Schumer said Treasury’s failure to designate China a
currency manipulator will strengthen efforts by him, Sen. Lindsey Graham,
R-S.C., and others to get Congress to impose hefty, 27.5 percent penalty tariffs
on all Chinese imports unless China changes its currency system.

Over the last two years, the administration has been
prodding China to stop linking its currency, the yuan, to the dollar. Other
economic powers also have been calling for such a change.

In China, central bank governor Zhou Xiaochuan said no one
should expect quick action. “Our measures will only come out after we have done
a good feasibility study,” he said.

Separately, President Bush said Tuesday that China was not
living up to the market-opening promises it made to join the World Trade
Organization in late 2001. He urged the country to stop piracy of U.S.
intellectual property and lift barriers that keep American goods and services
out.

A 1988 law requires the Treasury Department to analyze
countries’ exchange rate policies and determine whether manipulation to gain
unfair trade advantages is occurring. A finding that a country has manipulated
its currency could ultimately lead to sanctions.

“If current trends continue without substantial alteration,
China’s policies will likely meet the statute’s technical requirements for
designation,” the department’s report said.

American manufacturers say China’s system has undervalued
the yuan by as much as 40 percent. The weaker yuan makes Chinese goods cheaper
in the United States and American products more expensive in China.

Manufacturers have pushed for China to be designated a
currency manipulator.

“If this isn’t currency manipulation, then what else would
ever qualify,” said National Association of Manufacturers President John
Engler.

The administration has come under increasing pressure as
America’s trade deficit with China has soared to record levels, hitting $162
billion last year, the largest deficit ever recorded with any country.

The report called China’s currency policies “highly
distortionary” – posing a risk to, among other things, China’s trading partners
and global economic growth.

The administration said it would monitor China’s progress
on moving toward a flexible exchange system “very closely over the next six
months” in advance of the Treasury’s next currency report to Congress.

Treasury Secretary John Snow, speaking to reporters,
wouldn’t be pinned down on the timing of a possible designation of China should
the country not move ahead as the United States wants it to. He also wouldn’t
detail how high he would like to see China’s currency rise.

“It should be a real step,” he said. “It should be
something the world can see and know that China means business.” He said the
time for China to act is now.

For their part, the Chinese still insist they need more
time to shore up their banking system so it can withstand the volatility that a
flexible currency would introduce.

The China Foreign Exchange Trade Center, the central
foreign exchange brokerage, on Wednesday began trading eight new foreign
currency pairs – a reform that will not affect trading in the yuan or its
value.

The new system pairs the U.S. dollar against seven other
currencies: the euro, Australian dollar, British pound, Japanese yen, Canadian
dollar, Swiss franc and Hong Kong dollar. The eighth new set pairs the euro with
the Japanese yen.

Previously, trading by the center was only allowed between
the yuan and four other currencies: the U.S. dollar, the Hong Kong dollar,
Japanese yen and euro.

____________________________________________________________

US ups ante over Chinese currency

The United States has warned China that its exchange rate
policies are “highly distortionary” and it could soon be accused of manipulating
its currency.

The comments, in a report by the US Treasury Department, mark the fiercest
rebuke to date in a simmering row over the value of the Chinese yuan.

The US says the yuan – which is pegged to the US dollar – is undervalued,
giving Chinese firms a major advantage.

Chinese officials have ruled out upping the yuan’s value for the time being.

‘Economic risk’

The currency has traded in a narrow band to the US dollar since 1994.

US critics claim its value is 40% lower than it should be and that this
seriously disadvantages US firms by making Chinese exports cheaper.

In a twice-yearly report on the currency practices of its trading partners,
the US Treasury Department said China was in danger of being censored for
manipulating its currency if it did not free up its exchange rates.

While China’s ten year long pegged currency regime may have at times contributed to stability, it no longer does United States Treasury

While stopping short of accusing China of unfair currency practices, it urged
the Chinese government to move “without delay” to make the yuan more flexible.

“While China’s ten year long pegged currency regime may have at times
contributed to stability, it no longer does so,” the report said.

“Current Chinese policies are highly distortionary and pose a risk to China’s
economy, its trading partners and its global economic growth.”

However, at a press conference later on Tuesday US Treasury Secretary John
Snow emphasised that the US government was not calling for an immediate free
flotation of the yuan.

“This would be a mistake at this time,” he said. “China’s banking sector is
not prepared.”

Patience

Many US politicians believe that an artificially low value for the yuan has
fuelled America’s trade deficit with China, which rose to $162bn last year.

China has also come under pressure from other Asian countries including Japan
to adjust its currency system.

In response, Beijing has urged patience, arguing that it needs to reform its
banking systems before it will countenance such a move.

Earlier this month the head of the Chinese central bank refuted a suggestion
in the state newspaper, the People’s Daily, that the value of the yuan would
soon be increased.

[Author]

May 18, 2005 at 11:09 AM