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China's exchange rate change fails to appease the US

China's pledge to allow greater fluctuation in its currency's exchange rate failed to appease US lawmakers, who said they will push ahead with punitive legislation unless the yuan appreciates at a faster pace.

"We need more than signs, what's necessary is action," Democratic Representative Sander Levin, who chairs the trade panel of the House Ways and Means Committee, said in an interview yesterday. "I don't think the announcement will change the course of action in the Congress."

Negotiations next week led by US Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi (吳儀) may be a final chance to head off legislation, analysts said.

Paulson has demanded "tangible results" from the talks and urged China to heed the message of a Congress considering "unattractive bills."

"Widening the band is of no significance and won't ameliorate congressional criticism," said Nicholas Lardy, who analyzes China's economy as a fellow at the Peterson Institute for International Economics in Washington.

Failure to make much progress next week "is likely to lead to some sort of currency legislation coming out of Congress," he said.

The People's Bank of China yesterday announced it would let its currency rise or fall 0.5 percent a day, up from 0.3 percent. Congress is considering legislation imposing duties on Chinese imports unless China lets the yuan climb more against the US dollar, a trend that may ease the record US trade deficit.

Lawmakers of both parties filed a formal complaint with the administration of US President George W. Bush over what they called the yuan's deliberate undervaluation. The US trade gap widened to a record US$232.5 billion last year. China's foreign exchange reserves jumped 37 percent to a record US$1.2 trillion in March from a year before.

Since China ended a strict peg to the US dollar in July 2005, the yuan has risen 7.9 percent, less than the 12 percent gains in currencies including the South Korean won and the Malaysian ringgit.

Wu, who on Thursday said the US shouldn't "politicize" trade issues, will get a chance to make her case directly before Congress next week. On the sidelines of the Strategic Economic Dialogue talks with Bush Cabinet officials, her delegation will meet with members of the Senate Finance and House Ways and Means committees.

"I want to talk to them, but if they're going to come up and we're going to ask them a 30-second question and they're going to read a 20-minute paper to us, forget it," said Senator Charles Grassley, the senior Republican on the Senate Finance Committee.

Yesterday's announcement was "a positive step but it's too early to tell whether it's substantive or just window dressing," he said.

Paulson will push China for more in the talks from Tuesday to Thursday in Washington, Alan Holmer, the Treasury's top China official, told reporters in Washington yesterday.

The gathering, which includes US Federal Reserve Chairman Ben Bernanke and nine Cabinet members, is the second session of a twice-yearly forum set up by Paulson and Wu in September.

"It's important now that Chinese authorities use the wider band and allow greater currency movement within each day and over time," Holmer said.
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