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US' mild stand on yuan policy a smart move: analysts


A US decision not to brand China a currency manipulator, for now at least, is driven by an awareness that it would be hard to follow up harsh words with credible action, analysts said yesterday.

The moderate tone of the US Treasury's twice-yearly report on global currency policies also reflects bewilderment in Washington about what the rise of the Asian giant means, and what should be done about it, they argued.

"Once they do call China a manipulator, everybody will say, `What's next?' There's nothing next," said Andy Xie (謝國忠), a Hong Kong-based chief economist for Morgan Stanley. "The US has no credible threat against China."

US Treasury Secretary John Snow said on Wednesday China was not guilty under US trade law of manipulating its currency, a designation that would have trig-gered Sino-US consultations.

But the Treasury's report did attack China for making "far too little progress," a move analysts said was largely motivated by politics, as the economic rationale for blaming Beijing is weak.

"What they said in the report was said for political reasons," argued Shi Jianhuai (施建淮), a monetary policy expert at Beijing University's China Center for Economic Research.

"I'm not sure that an excessive appreciation would be in favor of the United States," he said.

The Chinese central bank declined comment.

But observers said the decision to avoid the "M-word" was a smart move, as proving the existence of manipulation is a bit like proving the existence of God -- it only convinces those who are already true believers.

"The Treasury was never convinced that manipulation was a workable concept," said Stephen Green, a senior economist with Standard Chartered in Shanghai.

"It shows Washington is shifting towards a more intelligent approach focusing on things they can prove," Green said.

Issues for which the US government is likely to find more tangible evidence include infringements of intellectual property rights, a problem that any visitor to a Chinese DVD store can convince himself of.

Even so, the Chinese currency is unlikely to disappear from the Sino-US agenda.

Democratic Senator Chuck Schumer said on Wednesday the evidence that China willfully distorts its currency "is as clear as the sky is blue."

Critics in Congress and in US industry insist that China's trade boom has been built on underhand tactics including a skewed exchange rate that gives it an unfair export edge.

The US trade deficit with China last year exploded to a record US$202 billion.

US manufacturers also claim that unfair Chinese competition has contributed to the loss of more than 2.8 million jobs since the start of 2001.

But Beijing argues, and has been supported in this by some analysts, that production has merely shifted from Japan, Taiwan and South Korea to China, and that the US' overall trade deficit with Asia is unchanged.

Analysts also argue that US companies are among the prime beneficiaries of China's export boom.

Chinese-made products retail at roughly three times the amount of money paid to the factories in China, and the difference is pocketed mostly by US companies along the supply chain, according to Xie.

"China and the US are so intertwined, and it's beneficial to both sides. The bottom line is political," he said.

"They don't know what to do with China. It's a question of whether China is a friend or foe, and they don't know. That's why we hear all these strange noises," Xie said.

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