China is not a currency manipulator, U.S. says But decision 'contingent' on further progress: Snow By Greg Robb, MarketWatch Last Update: 4:14 PM ET Nov. 28, 2005 [ Page 1 | 2 ] Disable MW live quotes | E-mail it | Print | Alert | Reprint |
WASHINGTON (MarketWatch) - In a blow to American manufacturers and other firms feeling competition from Chinese exports, the U.S. Treasury Department said Monday that China is not a currency manipulator.
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China was able to avoid being labeled a manipulator because of its "initial step" towards a floating currency, said Treasury Secretary John Snow in a statement released alongside the latest report to Congress on global exchange rate practices.
But Snow warned China that the U.S. expects further reform of China's foreign exchange regime "as quickly as possible."
Many members of Congress and U.S. manufacturers had wanted the Bush administration to formally name China as a manipulator.
It would be an official endorsement of a view that China undervalues its currency for trade advantage and would have triggered bilateral talks that might have ended in sanctions.
In July, China revalued the currency by 2.1% and scrapped an 11-year-old dollar peg, replacing it with a basket of currencies.
This was seen as a small move by experts who believe China is keeping the yuan undervalued by 15-40%.
The Bush administration has been calling on China for months to allow more "flexibility" in the value of the yuan.
President Bush himself pressed Chinese President Hu Jintao on the currency issue when the two leaders met in Beijing earlier this month.
Snow repeated these sentiments on Monday.
Snow called China's move towards a flexible currency "limited and far too slow to be sufficient," and said it was "imperative that China move towards greater flexibility as quickly as possible."
Chinese officials have been reluctant to revalue the currency by large amounts. They are worried about social stability and the export sector has been a crucial vehicle for job creation and economic growth.
Despite pledging China would "unswervingly press ahead" with currency reform, Hu offered no timetable for allowing the yuan to rise after meeting with Bush.
The Bush Administration has faced relentless pressure from lawmakers and manufacturing groups who want the value of the Chinese currency to rise
The pressure has been building along with China's trade surplus with the United States, now expected to top $200 billion this year.
On the other hand, the low value of the yuan has allowed U.S. interest rates to stay relatively low. In order to maintain a low value of the currency, China must buy dollars, which it then invests in the U.S. Treasury market. A sharp decline in Chinese demand for Treasuries could raise U.S. borrowing costs.
In the weeks leading up to the report, analysts speculated that the Treasury wouldn't demand negotiations with China about the yuan.
Labor and manufacturing interests, who wanted Treasury to cite China, pointed to an October trip to China by Snow as evidence the U.S. would pull its punch on the currency issue. Though Snow raised the topic with his hosts, he also spent considerable time urging Beijing to open its financial system and to stimulate domestic demand".
