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Snow upbeat after tour of China

US Treasury Secretary John Snow gestures during a press conference in Beijing on Monday. PHOTO: EPA

US Treasury Secretary John Snow yesterday headed home after a week of criss-crossing China, confident that his agenda for deep-seated change in the booming country's financial markets is getting through.

Much of the message delivered by Snow over the past week in Shanghai, the western city of Chengdu and in Beijing appears to have been designed also to reassure protectionist US lawmakers that China is serious about reform.

US officials said they were pushing at an "open door" in their meetings with top communist leaders as they promoted a "three-legged" strategy for reform that goes well beyond the vexed question of currency exchange rates.

Snow has been enthusiastic in his evaluation of China's commitment to prising open its heavily controlled financial markets and to boosting domestic demand after two decades of breakneck export-led growth.

Such an overarching strategy for China's future growth is needed to redress global imbalances that have seen the US trade deficit with China explode, US officials believe.

That trend in the deficit has infuriated members of the US Congress, who complain of the loss of hundreds of thousands of US jobs to cheap Chinese imports underpinned by an undervalued currency.

A long-awaited switch in July by China from a dollar peg to a tightly managed float for the yuan has done little to assuage its critics in the US Congress.

The Treasury was due to release a semi-annual report on global exchange rate policies at the weekend but postponed its publication until early November to incorporate the evidence gathered during Snow's visit.

The upbeat tone of Snow's appraisal suggests that the Treasury will disappoint US lawmakers who want the report to label China a currency "manipulator," which could open the way to US trade sanctions.

It may also take some of the sting out of the economic relationship ahead of a scheduled visit to China by President George W. Bush in late November.

Shortly before he flew out, Snow told a high-powered gathering of US and Asian financial-sector leaders here that Chinese leaders have been receptive to his reformist plans.

"As I have said, greater currency flexibility is a necessary element of reform, but insufficient alone to bring global trade and financial flows into appropriate alignment," he said.

"I also believe that a well-developed financial system is essential to buttress the Chinese economy in the face of the inevitable disruptions in the global economy.

"Where we find our differences, they are largely on the questions of the sequence and pace of reforms, not the direction," he said.

The US wants the yuan eventually to become freely floating, like the dollar or euro but it recognizes that will take some time to happen.

In the meantime, China can throw its banks, brokerages and insurers open to greater foreign competition to foster spending among its newly prosperous people.
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