Bush administration officials and members of Congress are easing public pressure on China to raise the value of its currency. That is fueling speculation that Beijing's image-conscious leaders will change their policy now that they appear under less overt duress.
Treasury Secretary John W. Snow said yesterday that "we need to give [China] a chance" to show that they will allow the yuan to rise as they have promised. At issue is China's policy of keeping the yuan's exchange rate at a little more than 8 yuan per U.S. dollar, which makes Chinese products artificially cheap, according to many U.S. manufacturers, politicians and economists.
Snow's comments, which came in an interview on Bloomberg TV, were the clearest sign yet that the Treasury will refrain from branding China a "currency manipulator" in a much-awaited report on the currency policies of U.S. trading partners. Many international economic experts have predicted that the department would stop short of labeling Beijing a manipulator for fear that doing so would trigger a backlash within China's government and delay a meaningful change in Chinese policy.
Snow would not comment on the report's conclusions, which are expected in the next couple of weeks, and Treasury officials also would not comment on a Wall Street Journal story citing unidentified sources saying that the department has decided against naming China as a currency manipulator. But other sources familiar with the administration's thinking confirmed that for now at least, China will almost certainly avoid that label.
The Treasury's softer stance emerged as two senators who have led the congressional attack on China's currency policies also cut Beijing a little slack. Sens. Lindsey O. Graham (R-S.C.) and Charles E. Schumer (D-N.Y.) announced Wednesday that they will delay a vote on their bill, which would impose tariffs of 27.5 percent on Chinese products entering the United States unless Beijing allows the yuan to rise substantially. They said they did not want to force a vote while President Bush is visiting China this weekend, on the theory that the president will be better able to influence China if his counterparts do not feel they are being threatened.
The bill, which won the backing of 67 senators in a procedural vote last April despite administration opposition, was supposed to come up for a vote this month. But the lawmakers said they had agreed to hold off until Dec. 23 and possibly as late as March 31, 2006.
The diplomatic olive branches from the administration and Capitol Hill spurred conjecture in both Washington and Wall Street that another change in Chinese policy may be in the making. Last summer, Schumer and Graham pulled their bill temporarily after a meeting with Snow and Federal Reserve Chairman Alan Greenspan that the senators said assured them a Chinese move was forthcoming. On July 21, China ended the rigid peg linking the yuan to the dollar and allowed its currency to appreciate by 2.1 percent, although the yuan has barely budged since then and Chinese officials have warned that they intend to change their system gradually.
Schumer and Graham had dinner with Snow and Greenspan a few days ago, suggesting that the four are coordinating their strategies to some extent.
"This sort of thing happened last June, and then we had the revaluation in July," said Ezechiel Copic, a currency analyst at Ideaglobal in New York. "So now there's speculation that something will come of this, that there's a promise behind the scenes that something will happen. Right now everyone is waiting to see what will come of Bush's trip to China."
Strong critics of China's policy voiced disappointment over the prospect that the Treasury report will not name Beijing a manipulator, but said they hope the latest comments will herald a Chinese move.
"If the Chinese haven't moved by the time of the report, we want Treasury to cite them," said Franklin J. Vargo, vice president for international economic affairs at the National Association of Manufacturers. Referring to Snow's comments, he said, "we feel the Chinese have already had a chance" to change their policy significantly, "but this may indicate that China will act in the near future."
In the television interview, Snow said he was "disappointed" that Chinese officials were not allowing the yuan to rise more rapidly. But, he said, "They said they were committed to allow demand and supply to operate. We need to give them a chance to prove the validity of their own commitments."
Nicholas R. Lardy, a China expert at the Institute for International Economics, said, "It's fairly clear that Mr. Snow and those around him believe that high-profile public pressure is counterproductive. They're trying to turn down the volume; they seem to be optimistic that the Chinese will move some more."
Treasury officials have called on the International Monetary Fund to crack down on countries that are manipulating their currencies for competitive gain. The IMF yesterday issued a report reiterating its exhortation for China to make the yuan more flexible, but its managing director, Rodrigo de Rato, has openly rebuffed the U.S. suggestion that the fund, as a multilateral institution, is better suited to confronting Beijing.