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Thu, Jul 31, 2003 - Page 12 News List

China needs `quiet diplomacy:' Snow

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Chinese schoolgirls dressed in military costumes perform at a gala as part of the upcoming anniversary celebration today for the Chinese People's Liberation Army, in Beijing yesterday.

AFP PHOTO

The Bush administration plans to use "quiet diplomacy" to encourage the Chinese government to allow its currency to strengthen by widening its trading band against the dollar, Treasury Secretary John Snow said.

"We want to engage the Chinese in a series of conversations and discussions" about relaxing the band, Snow told factory workers in Milwaukee, Wisconsin. "They ought to be moving to a broader band and we're going to encourage that."

The yuan has benefited from its link to the dollar, giving a boost to Chinese exports, as the US currency slid 29 percent against the euro since the start of last year. The dollar has dropped 19 percent against a basket of the most widely traded currencies during the same period, as an economic slowdown discouraged foreign investors from buying US financial assets.

The administration recognizes currency policy is for the Chinese to determine, and will lobby privately for a shift, said Snow, speaking on the first day of a two-state bus tour with Labor Secretary Elaine Chao and US Secretary of Commerce Don Evans to promote Bush's economic agenda. The three officials are hearing a chorus of complaints from US manufacturers concerned about their ability to compete with China's currency controls.

"These are sovereign decisions and we can't dictate to other countries in the world," Snow said. "We can though, through quiet diplomacy, make our feelings known and point out why we think movements in this direction make sense."

Asked later by reporters if he would have direct talks with China, Snow said "at some point I think it would be very helpful."

He is considering visiting the country for the first time as Treasury secretary in September, he said.

The US had a trade deficit of US$9.9 billion with China in May. Snow said for China to maintain its trade surplus it must buy US government securities and that "at some point these foreign reserves become troublesome to the global trading system."

As of May, China held US$121.7 billion in US Treasuries, an increase of almost 55 percent from December 2001, according to Treasury data.

The Treasury secretary said there may be risks in a shift for the Chinese given their banking system.

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