China cannot be tagged as a country that is manipulating its
currency to gain unfair trade advantage, the United States said on
Tuesday.
The Bush administration did say that "more flexibility in
China's exchange rate will help it achieve more balanced growth"
and "promote a number of other outcomes that would be economically
beneficial."
But in the report it is required to deliver to Congress every
six months, the administration said that no country met the
"technical requirements for designation" as a currency
manipulator.
Such a designation could trigger negotiations that could
ultimately lead to trade sanctions.
The latest report was released four days after a Cabinet
delegation led by Treasury Secretary Henry Paulson concluded
high-level talks in Beijing aimed at resolving the root causes of
America's huge and growing trade deficit with China.
China's trade surplus with the United States grew to US$102.2
billion in the first nine months this year. But the US Government
predicts the imbalance is on track to surpass last year's record
US$202 billion based on a different set of calculation methods.
The report, which elaborated on Beijing's exchange rate regime
reform, said China "took further steps to reform the currency
market and (yuan) flexibility increased compared to the last six
months of 2005."
The yuan has strengthened about 5 percent since Beijing dropped
its peg to the US dollar in July last year, switching to a
mechanism that sets the exchange rate on a basket of world
currencies.
It was trading at 7.8198 to the US currency yesterday.
But the report noted that Chinese currency reforms so far have
been "considerably less than is needed" to rebalance world
trade.
The report, which was scheduled to release in November, was put
off because of the US mid-term election and the Sino-US strategic
economic dialogue.
Chen Fengying, a senior researcher with the China Institute of
Contemporary International Relations, said the report allows some
leeway for both sides, paving the way for the next round of the
strategic dialogue scheduled to be held in Washington next May.
The report indicates that policymakers in the White House
understand that "the revaluation of the renminbi, or the yuan, will
not solve the trade imbalance," she said, adding the deficit is
caused by such factors as globalization and rising energy
costs.
Chen emphasized that politicizing economic issues would only
generate more disputes.
Ronald McKinnon, a professor of economics at Stanford
University, also said the yuan appreciation would not reduce the US
deficit.
He wrote in The Wall Street Journal that if China were coerced
into a large appreciation of its currency, it could face the same
deflationary fate as Japan in the 1980s and 1990s and all this
without reducing its trade surplus.
A major revaluation of the renminbi would not correct the saving
imbalance between the two countries but cause a major bout of
monetary instability, which may seriously hurt the interests of the
United States, he said.
Gao Haihong, a senior research fellow on international finance
and trade, said China has set its own pace on the reform of the
foreign exchange regime based on the country's ground
realities.
She said Washington should give China more time so that it can
adjust its policies step by step, adding that the report shows the
Bush administration has adopted a constructive attitude towards
China.
(China Daily December 21, 2006)