-->China May Allow Yuan To Appreciate
Currency Policy Causes Tension With U.S.
By Peter S. Goodman
Washington Post Foreign Service
Wednesday, February 11, 2004; Page E01
SHANGHAI, Feb. 10 -- Chinese Premier Wen Jiabao said Tuesday that his country's fixed currency-exchange rate would remain"basically stable," state media reported, in an apparent sign that Beijing might allow its currency to appreciate slightly this year to ease trade tensions with the United States.
The premier made the comment in an opening speech to a closed-door gathering of senior government officials and financial regulators in Beijing, according to the state-run China Central Television network. The conference came two days after the Group of Seven industrial nations called for greater flexibility in currency values worldwide -- a message widely construed as being aimed primarily at China.
Hong Kong continued to bid up the price of futures contracts to purchase China's currency, a key indicator that markets are betting that China will allow at least a slight increase in the value of its currency, the yuan.
The gathering of economic policymakers in Beijing focused on discussion of China's fixed currency regime along with plans to revamp the country's state-owned banks, which are holding up to $500 billion in bad loans, state television reported. The agendas of such meetings are rarely disclosed publicly, underscoring the sense that China may be attempting to signal a slight change, or at least is attempting to mollify those assailing the country for holding the line on its currency policy.
At the same time, the prominent reporting of Wen's comments on state media also appeared to reinforce the government's resolve that it will largely preserve the status quo, suggesting that any eventual revaluation of the yuan would be minor.
The Bush administration has for months pressed China to allow its currency to float, arguing that it is pegged at an artificially low rate that makes China's exports unfairly cheap on world markets. As China's trade surplus with the United States has soared beyond $100 billion, American manufacturers -- particularly makers of toys and furniture -- have blamed China and its alleged currency manipulation for the losses of millions of jobs.
But China's government has dismissed such complaints as unfair, noting that while it enjoys a huge trade surplus with the United States, its commerce is largely balanced worldwide. Moreover, some two-thirds of China's exports involve products produced in factories that are wholly or partially owned by foreign investors, such as Dell Inc. and Motorola Inc.
China's leaders have expressed reluctance to alter currency policy for fear that it could dampen exports, a critical economic engine in a time when the country's transition from communism to the free market is eliminating millions of jobs. The government is also unwilling to open its economy to the swiftly moving capital that a floating exchange rate would entail, cognizant that its rickety banks might not be able to withstand a surge of funds out of the country.
Last month, two officials at China's National Bureau of Statistics asserted that there was"no chance" of a yuan revaluation this year, adding that the speculators banking on a rise"will be burned."
But even as China brushes off pressure for swift action, rebuffing a series of Bush administration envoys in recent months, sentiment has grown that some adjustment is in the works. In recent weeks, investment banking giants Goldman Sachs Group Inc. and ABN Amro NV have issued reports forecasting a slight revaluation this year. Over the weekend, the official China Business Post reported that Beijing would soon allow the yuan to appreciate by 5 percent.
China's central bank swiftly rejected the reports."The reform of China's exchange-rate mechanism is still under discussion," Bai Li, a spokesman for the People's Bank of China, told Bloomberg News. On Tuesday, the official New China News Agency quoted another bank official as saying that authorities had no plans to allow the yuan to appreciate.
But many analysts still assume that some adjustment is ahead because Beijing cannot afford a trade dispute with the United States at a time when it is seeking help from Washington on a range of other issues. China's leaders are urging the Bush administration to pressure the government of Taiwan to pull back from holding a referendum scheduled for next month on whether it should increase defense spending. Beijing construes the vote as a move toward Taiwan's official independence, a step it has threatened to challenge with military force.
"You can't rule out the possibility that there is under-the-table bargaining on Taiwan," said Larry Lang, chairman of the finance department at Chinese University of Hong Kong."All these things can be bundled together."
<ul> ~ Quelle: Washington Post</ul>
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