Alan Greenspan, the Federal Reserve chairman, said Thursday that American manufacturers may not benefit much if China permits its currency to rise in value against the dollar.
Jumping into a domestic political debate that has roiled Congress and put the Bush administration in a quandary, Greenspan said that if the Chinese currency, known as the yuan or renminbi, did appreciate, American retailers would probably buy from other low-wage countries instead of from domestic companies.
Textile industry executives and politicians from Southern states, where the textile industry is strong, have been especially critical of China for keeping its currency pegged around 8.28 yuan to the dollar for the last seven years. But Greenspan said that they would benefit little from any appreciation.
"Far more likely is that our imports from other low-wage countries would replace Chinese textiles," he said in a speech to the World Affairs Council of Greater Dallas.
At a time when the George W. Bush administration has imposed narrowly defined quotas on bras and sleepwear from China and imposed tariffs on Chinese color televisions, Greenspan said that broader restrictions on trade would hurt the US. He warned against any return to the high tariffs that characterized American trade policy in the middle of the 20th century.
"Were we to yield to such selective nostalgia and shut out a large part, or all, of imports of manufactured goods and produce them ourselves, our overall standards of living would fall," he said.
Yet in a rare piece of public advice on how another country might handle its monetary policy, Greenspan suggested that China could not sustain its current policies indefinitely.
Foreign investment and money for speculations have been flooding into China, drawn partly by rapid economic growth but also by the potential for quick gains if the currency appreciates. Beijing has prevented investors from bidding up the value of the yuan with all those dollars by buying huge numbers of dollars and printing more yuan to pay for them.
The People's Bank of China, the nation's central bank, has tried to prevent these extra yuan from causing inflation by selling government notes and bonds, and canceling the yuan that Chinese banks and citizens use to pay for them. That has been only partly successful. China's money supply is rising 20 percent a year.
"Should this pattern continue, the central bank will be confronted with the choice of an overheated economy, with its potential recessionary consequences, or a curtailing of dollar asset purchases," Greenspan said. "The latter, presumably, would allow the renminbi to appreciate against the dollar."
Greenspan acknowledged that weaknesses in China's banking system were a concern.
"A prosperous China will bring substantial positive benefits to the rest of the trading world," he said. "It is, thus, important to all of us that they succeed in navigating through their current economic and financial imbalances."
Before and during a visit to Beijing in September, Treasury Secretary John W. Snow urged China to permit its currency to appreciate.
But after Chinese officials bridled at the public criticism, US officials became more cautious. President Bush said little publicly about the subject on Tuesday when Prime Minister Wen Jiabao (溫家寶) of China visited the White House.
Bush did publicly urge President Chen Shui-bian (
The planned vote has infuriated China, which sees it as a step toward formal independence for the nation.
Liang Hong, an economist in the offices here of Goldman Sachs, said Bush's comments on Taiwan had fostered speculation that China might later reward the Bush administration by permitting some appreciation of the yuan.
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