U.S. Warns China on Currency Policy

The Bush administration yesterday declined to accuse China of manipulating its currency for economic advantage, but said that it is likely to do so if China does not change its policy.

The decision deferred a possible diplomatic confrontation with China but did not placate some members of Congress who contend that China artificially suppresses the value of its currency, the yuan, to keep its exports cheap and undercut U.S. manufacturers.

The Treasury Department is required by law to assess twice a year whether other countries are manipulating exchange rates to their own benefit in international trade. Declaring China a manipulator would trigger official negotiations, a partly symbolic step because the issue is already a subject of talks between the United States and China.

"Failure on the part of China to move to a more flexible regime will almost certainly mean that China will meet the technical requirements" for being declared a manipulator in the future, Treasury Secretary John W. Snow said at a news conference yesterday.

But Snow said Treasury's latest review did not find that China met the "technical" requirements. The review covered the second half of last year, and the government only recently concluded that China is capable of moving to a more flexible system, Snow said.

"I think they're trying to have it both ways," said Morris Goldstein, a senior fellow at the Institute for International Economics. "It's as clear an open-and-shut case of manipulation as you'll find in the real world," Goldstein said. "They just didn't want to name" China, he said.

China has long fixed the value of its currency at a rate of 8.28 yuan to the dollar instead of allowing it to float. The policy can make Chinese goods less expensive for U.S. buyers than they might otherwise be.

China's exports to the United States exceeded its U.S. imports by $93.5 billion in the second half of 2004. That trade imbalance was up from $70.2 billion in the second half of 2003.

Snow said the United States is not calling on China to let its currency float freely. Rather, Treasury's report called for China to "move without delay" toward greater flexibility. Snow would not say precisely how much the U.S. government wants China to loosen the exchange rate, and he said China is the best judge of the amount.

The Treasury report said China's current policies "pose a risk to China's economy, its trading partners and global economic growth."

Asked to respond to the Treasury report, a spokesman for the Chinese Embassy provided a news story from state-run media quoting comments by Premier Wen Jiabao Monday in Beijing. Wen reportedly said that any reform of the exchange rate "is an issue concerning China's sovereignty."

"Any pressure or media play-up, or the politicization of an economic matter will not be conducive to resolution of the issue," Wen said.