A congressional showdown with China over its currency policies abated yesterday, as two U.S. senators said they had received assurances from Treasury Secretary John W. Snow and Federal Reserve Board Chairman Alan Greenspan that Beijing would soon allow the value of the yuan to rise.
But a new confrontation erupted over the bid by a Chinese company to buy a U.S. oil producer, as the House overwhelmingly voted in favor of legislation aimed at blocking the Bush administration from approving the deal.
Sens. Charles E. Schumer (D-N.Y.) and Lindsey O. Graham (R-S.C.), who sponsored a widely backed bill threatening to penalize Beijing for manipulating its currency, said they would postpone the legislation until later this year. Their announcement followed a meeting in the Capitol with Snow and Greenspan.
"They have convinced us that the likelihood of real progress in China on currency revaluation is very real and could well occur in a very short while, in the next few months," Schumer said. "If we can get there by accommodation, so much the better."
The agreement by the senators to hold off on their bill defused a battle over Beijing's policy of fixing the value of the yuan at 8.3 per U.S. dollar. Critics contend that it gives Chinese companies an unfair advantage in international markets by keeping the yuan's value artificially low, making it almost impossible for many U.S. manufacturers to compete. The Schumer-Graham bill, which drew the support of 67 senators on a procedural vote in April, would impose duties of 27.5 percent on Chinese goods unless Beijing allows the yuan to rise significantly. A vote had been scheduled for later this month.
The prospect of such stiff duties on Chinese imports has aroused fears of a transpacific trade war, with both Greenspan and Snow imploring Congress that persuasion is more likely than threats to induce concessions from Beijing. Schumer and Graham said that while they would be pleased with a peaceful resolution, their bill had helped force movement by the Chinese. "The 67 votes was a great signal to the Chinese, to the administration, and to the international community," Graham said.
Chinese officials have long said they want to have a more flexible currency but don't want to act too soon, lest they destabilize the nation's financial system. Schumer and Graham did not suggest that Snow and Greenspan made promises about the size or timing of such a step, but Schumer said, "What we've always said is that it has to be significant . . . and Secretary Snow and Chairman Greenspan have indicated that that is very much in the cards."
The evidence of comity on the currency issue contrasted with the uproar over the bid by CNOOC Ltd., of which the Chinese government owns 70 percent, to acquire Unocal Corp.
By a vote of 333 to 92, the House passed an amendment to an appropriations bill that would bar the Treasury Department from spending any money to approve the CNOOC takeover.
The Treasury Department heads an interagency panel, the Committee on Foreign Investment in the United States (CFIUS), that is empowered to block foreign purchases of U.S. companies or insist on changes in the terms, if national security interests are at stake.
CNOOC's proposed takeover, coming at a time of rising oil prices and deepening congressional antipathy toward China's huge trade surplus, has been denounced by lawmakers worried that Chinese control over Unocal's reserves could deprive the U.S. economy of much-needed fuel. Those fears are derided by many energy experts but are widely shared on Capitol Hill.
"The Chinese bid for Unocal is compelling evidence of America's strategic energy vulnerability," House Minority Leader Nancy Pelosi (D-Calif.) said. "China has clearly decided to meet its growing energy demand by obtaining control of energy assets around the world."
The vote on the amendment, which was offered by Rep. Carolyn Cheeks Kilpatrick (D-Mich.), stunned business leaders, who called it a damaging congressional intrusion in foreign investment.
"This is exactly the kind of thing we hate when it happens to us," said Todd M. Malan, executive director of the Organization for International Investment, a group that represents the U.S. subsidiaries of many foreign companies. "It is exactly the kind of thing the U.S. business community gets concerned about when it happens in Brazil or India or some other country where the legislature interferes in a standard, rigorous review process."
It was not clear what impact Kilpatrick's amendment would have on CNOOC's bid. Even if the legislation clears the Senate and becomes law, it wouldn't necessarily stop President Bush from approving the deal.
"But it does eliminate funding for the CFIUS review," Malan said, so it would prevent government officials from investigating CNOOC, its executives, and the ramifications of its control over Unocal.