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Mon, Oct 02, 2006 - Page 10 News List

PRC cautions against trade restrictions

MONEY MATTERS Beijing said the maintenance of healthy trade relations with the US was in the interests of both and said foreign exchange reform would proceed gradually


Beijing said yesterday that it had noted the postponement of US legislation aimed at slapping sanctions on China for undervaluing its currency, and again cautioned against new measures.

"We have noted the comments of senators [Charles] Schumer and [Charles] Grassley," Chinese commerce ministry spokesman Chong Quan (崇泉) said in a statement on the ministry Web site.

"To adopt trade restrictions or trade protectionism will only harm the bilateral interests of Sino-US trade relations and does not conform to the rules of the WTO," he said.

"To maintain and develop the healthy and stable Sino-US trade relationship is in the interests of the two nations," Chong said.

Chong was commenting on a decision by the congressmen on Thursday to hold off until next year in crafting the legislation.

Critics of China argue the yuan is undervalued against the dollar by up to 40 percent, lending an unfair boost to Chinese exports and driving thousands of US businesses to the wall.

A bill by Schumer and Republican Senator Lindsay Graham would have slapped a 27.5 percent tariff on all of China's US-bound exports unless the country moved forcefully to revalue its currency.

Meanwhile, a bill by Grassley would have forced the US administration to veto any increase in the IMF vote of a country with a "fundamentally misaligned" currency.

The lawmakers agreed to hold off on the bills after US Secretary of the TreasuryHenry Paulson succeeded in establishing a new "strategic economic dialogue" between the US and China during a visit to Beijing late last month.

Meanwhile, in an interview to be published in today's edition of the Chinese-language Caijing magazine, People's Bank of China Governor Zhou Xiaochuan (周小川) reaffirmed China's principle of carrying out gradual foreign exchange reform.

Zhou said that the importance of the basket of currencies to which the yuan is referenced will diminish.

The flexibility of China's currency is gradually being expanded as the influence of market forces grows stronger, he said.

Zhou gave the interview in last month following the IMF and World Bank meetings in Singapore, and Paulson's visit to China.

Caijing, a weekly, is widely respected for its investigative and financial articles.

"China's policy direction on its exchange rate reform is clear cut: to gradually expand flexibility," Zhou said in the interview, a copy of which was seen by Dow Jones Newswires.

"Currently, we are gradually allowing market supply and demand to play a greater role," he said.

"The weight of the role of the basket currency reference is slowly weakening, while market factors are slowly strengthening," Zhou said.

In July last year, Beijing revalued the yuan by 2.1 percent against the US dollar, and scrapped its 11-year-old de facto dollar peg to begin referencing the yuan to a basket of currencies.

Since then, the yuan has risen a total of about 2.6 percent, which some trading partners say is too slow, especially as China's economy has powered ahead at high growth rates and its trade surplus has ballooned.

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