U S senators seek "pattern of progress" on yuan
BEIJING, Mar 21 (Reuters) A U.S. senator threatening sanctions unless China revalues the yuan said on Tuesday he wanted to learn whether there was ''a pattern of progress'' in the currency's quickening rate of climb.
Charles Schumer, a New York Democrat, is co-author with Lindsey Graham, a South Carolina Republican, of a bill that would impose a tariff of 27.5 percent on Chinese imports into the United States unless Beijing revalues the yuan ''at or near its fair market value''.
''We are not here to dictate specific markers... We want to see if there has been a pattern of progress,'' Schumer told reporters at the start of a fact-finding trip.
Schumer and Graham are holding talks to decide whether to go ahead with a vote on their bill by March 31.
The two law-makers, accompanied by Oklahoma Republican Tom Coburn, were expected to meet Chinese Foreign Minister Li Zhaoxing on Tuesday and hold talks with central bank governor Zhou Xiaochuan and Commerce Minister Bo Xilai later in the week.
''To say that there's been no progress would be wrong. To say that there's been complete progress would be wrong. But we would like to get an idea from our Chinese hosts what the future is going to be like,'' Schumer said.
The yuan slipped a touch on Tuesday to 8.0274 per dollar after hitting 8.0232 per dollar on Monday. That was the highest level since Beijing revalued the yuan by 2.1 percent on July 21 and freed it from a dollar peg to float within managed bands.
The yuan has now gained 1.03 percent since the revaluation.
The senators contend the yuan is deliberately undervalued by 15 percent to 40 percent, handing Chinese exporters an unfair advantage that is bloating the 2 billion U.S. trade deficit and destroying millions of American manufacturing jobs.
Premier Wen Jiabao last week ruled out another one-off revaluation but said China would gradually permit greater movement in the exchange rate.
ON THE WAY UP Sure enough, the yuan has risen at a 3.5 percent annual pace over the past four weeks, a movement driven not just by U.S. political factors but also by China's economic fundamentals, said Jonathan Anderson, chief Asian economist with UBS in Hong Kong.
''We believe dollar/yuan could trade below the key psychological level of 8.00 within the next few weeks,'' he said in a note to clients.
The Schumer-Graham bill is not new but, with President Hu Jintao due to visit the United States next month, the measure has become a lightning rod for U.S. unease over the speed of China's economic rise.
''My goal is to sell the idea that stability is best achieved when everyone plays by the same rules,'' Graham said.
The bill is opposed by President George W. Bush and by many in the U.S. business community. For one thing, they say, the measure would flout World Trade Organisation rules.
But Stephen Roach, Morgan Stanley's chief economist, urged Bejing not to treat the Schumer/Graham initiative as run-of-the-mill political pressure.
He said it was a question of when, not if, the bill was put to a vote in the Senate, which was likely to approve it by a significant margin.
''History tells us that protectionism is a very dangerous development because it leads to counterreactions from those who are adversely affected. And that's a very slippery slope for the world to go down,'' Roach told a news conference in Beijing.
Given the U.S. need for foreign capital to fund its record current account deficit of 7 percent of national income, Roach said law-makers were playing with fire.
If China retorted by cutting its purchases of U.S. treasury securities, the dollar would fall and real interest rates would rise, causing serious harm to the economy, especially consumers.
''At a time when the United States is more dependent on foreign capital to sustain its economic growth than ever before, to impose tariffs on not just a major provider of goods but a major lender of capital I think would be close to economic suicide,'' he said.
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