Wed, May 10, 2006 page10

• China critics wait for Treasury currency report

  MANIPULATOR? The biannual report is due today, with several members of the US Congress wanting China taken to task over what they perceive to be currency games

  • AFP AND BLOOMBERG
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  The US Treasury said it would release today a semi-annual currency report that angry critics in Congress say ought to label China a "manipulator" of its exchange rate.

  The report on global exchange-rate policies will be published today, Treasury spokesman Tony Fratto said on Monday.

  The yuan held weaker than eight to the dollar before the release of the report.

  The yuan was at 8.005 per dollar as of 3:30pm in Shanghai from 8.007 yesterday, according to data compiled by Bloomberg.

  It has never breached 8 since the decade-old peg was abandoned.

  The report is required twice a year under US trade law.

  In November, the Treasury stopped short of labeling China a currency manipulator, a designation that would trigger formal consultations between Washington and Beijing.

  But it said that China must take additional steps on revaluing its yuan currency to avoid the label in the future.

  Fratto refused to divulge what Wednesday's report would say, but repeated the conciliatory tone towards China used of late by top officials including Treasury Secretary John Snow.

  "We've said for a while that they are in fact moving towards greater flexibility, and that they could and should do more," he told reporters.

  Several bills have been introduced in Congress that would punish China with US trade reprisals for its perceived failure to move faster on currency reform.

  The complaint runs that by intervening to keep the yuan cheap against the dollar, China is unfairly fostering a boom in its exports at the expense of US industry, and contributing to a record-breaking US trade deficit.

  China tinkered with its currency trading regime last July, but since then the yuan has risen only marginally against the dollar, and all the signs point to Beijing sticking to its gradualist pace of change.

  Chinese President Hu Jintao (胡錦濤), visiting Washington last month, pledged to continue exchange-rate reforms and boost US imports but offered no new concrete measures.

  "We think the commitment [to reform] is real. We're going to focus on action," Fratto said.

  "We have stressed the virtues of flexibility in the economy, and we're seeing China moving in that direction on the currency, capital account, on banking systems, using market instruments," he said.

  Late last month, China raised interest rates for the first time since October 2004 in an attempt to cool its fast-growing economy.

  Fratto said the impact on the economy and exchange rates would be limited.

  "But it's interesting as a political signal," he said.

  "We see it as a very positive development in sending a signal to financial markets, to their banks, that they are pointing towards greater reliance on market mechanisms," he said.

  To list China as a currency manipulator, the Treasury must conclude that it is distorting the yuan-dollar exchange rate "for purposes of preventing effective balance-of-payments adjustments or gaining unfair competitive advantage in international trade."

  If currency manipulation is established, the 1988 Omnibus Trade and Competitiveness Act would require the Treasury secretary to initiate negotiations with China.

  The negotiations could be conducted via the IMF or bilaterally. The aim would be to ensure that countries concerned "regularly and promptly adjust" the exchange rate "to eliminate the unfair advantage."

  That section of the US trade act does not spell out the consequences if the negotiations should fail. But other parts of the act put an array of measures including trade sanctions at the government's disposal.

  Foreign Exchange Analytics analyst David Gilmore said the Treasury report had become more about politics than about economics, as the government tries to find ways of balancing congressional anger with not alienating China.

  "The Treasury may well gamble that Congress will be sated by calling the yuan a `misaligned' currency if not naming China a manipulator," he said.
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