Senators Order Action on China Currency Policy
Friday, May 27, 2005
U.S. senators from both parties demanded yesterday that the Bush administration get tougher with China for keeping its currency fixed against the U.S. dollar, and some exhorted the administration to crack down on Japan as well over the currency issue.
The lawmakers' comments, which were addressed to Treasury Secretary John W. Snow at a hearing of the Senate Banking Committee, underscored the mounting pressure on Capitol Hill for action to change China's currency policy. Beijing has kept its currency, the yuan, pegged at 8.28 per dollar since 1995, a rate that many economists and U.S. manufacturers say is too low, giving Chinese firms an unfair edge in global markets.
Sen. Richard C. Shelby (R-Ala.), the committee's chairman, told Snow that members of Congress "think you punted" in a report issued last week on foreign countries' currency practices. The report stopped short of branding China a manipulator of its currency, although it used much more critical language than in the past about the yuan's fixed rate and said Beijing would likely qualify as a manipulator in the future if it failed to make its currency more flexible.
The panel members' remarks also indicated that Tokyo may join Beijing as a target of congressional wrath. U.S. automakers have begun saying that the Japanese yen is too low against the dollar and is contributing to the problems they are having in competing with Toyota, Nissan, Honda and other Japanese brands.
Snow responded to the senators by predicting that China would make enough "material" and "significant" changes in its currency policy to avoid being labeled a manipulator in the Treasury's next report on the issue, which is due in six months. "I may have to eat those words," he admitted.
As for Japan, he said "there's a pretty good understanding" with Tokyo that it should not intervene in currency markets to keep the yen from rising.
The hearing was the first major face-off between the administration and Congress concerning China's currency since the release of the Treasury report. Panel members generally expressed dismay that Beijing had been let off the hook; Sen. Elizabeth Dole (R-N.C.) said she was "frankly astounded." Several senators reiterated their support for legislation that would impose tariffs on Chinese imports unless Beijing raises the value of the yuan or allows it to float. The White House opposes such bills but is using those threats to prod the Chinese.
Snow declined to elaborate on the precise nature or magnitude of change that the administration expects from China. The administration has conveyed the message privately to Chinese officials that the value of the yuan should be increased by at least 10 percent to avoid a protectionist backlash in Congress, according to a report in the Financial Times this week that Treasury officials would neither confirm nor deny.
Snow reiterated his position that an upward move in the yuan "has to be enough to matter," and that rather than moving immediately to a fully-floating currency, the Chinese should take an "intermediate step" that would move them in that direction.
Panel members criticizing Japan included Sen. Paul S. Sarbanes (D-Md.), the ranking Democrat on the committee, and Sen. Debbie Stabenow (D-Mich.). Although Japan's central bank, which was massively purchasing dollars in 2003, stopped doing so in March 2004, Japanese officials "have been involved in really verbally intervening," Stabenow said, "making threats that if the yen continues to strengthen against the dollar they'll resume direct manipulation of their currency."
Sarbanes cited figures showing that while the euro has risen nearly 50 percent against the dollar since February 2002, the yen has risen only about 20 percent, and other Asian currencies including the South Korean won have also risen much less than the euro. (Yesterday the euro briefly dipped below the psychologically significant level of $1.25, touching a seven-month low of $1.2497 before rising a bit.)
Snow observed that a rise in the Chinese yuan would increase the chances that other Asian currencies would rise. He also suggested that he is not inclined to confront the Japanese, because "their currency had a fairly significant appreciation" in the past few months, and Tokyo has joined other members of the Group of Seven major industrial nations in endorsing "flexibility" in currency markets.
"We're opposed to interventions. We've made that clear" to the Japanese, Snow said. "There haven't been interventions for a considerable period of time. . . . So while we seem to be on a good course, we're going to continue to carefully monitor that, and we're going to continue to reinforce our views."