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Snow urges China for more action on yuan

(AP)
Updated: 2005-10-11 14:33

TOKYO - U.S. Treasury Secretary John Snow on Tuesday urged China to adopt a more flexible, market-driven currency while applauding China's recent step to cut the yuan's link to the U.S. dollar. 

Snow was wrapping up the Japan leg of an Asian tour that will take him to China for the rest of the week. The trip comes amid ballooning American trade deficits and increased trade tensions with the two Asian export powers.

While in Tokyo, Snow applauded China's step to cut the yuan's link to the U.S. dollar but said more action is needed.

"We are anxious to see the Chinese fulfill the commitment they made to allow market forces to play a larger role in setting their currency's value over time," Snow said during a press conference at the U.S. Embassy. "They've gotten on the path that allows them to do so and we'd like to see China continue on that path."

In July, China halted its a decade-long practice of pegging the yuan's value to the U.S. dollar, choosing instead to let the yuan to trade in a restricted float against a basket of currencies of its major trading partners. At the same time, China raised the value of the yuan by 2.1 percent against the dollar.

But since then, the yuan has gained only about 0.3 percent against the dollar.

American manufacturers contend that the yuan is now undervalued by as much as 40 percent, making Chinese goods cheaper in the United States and American products more expensive in China. U.S. manufacturers contend that is a major reason for the huge trade gap between the two nations.

American business leaders hope Snow's visit to China will speed its currency reforms.

"We're going to continue to talk privately about these matters," Snow said. "It will be in China's interest and the interest of the global economy as well."

U.S. President George W. Bush's administration is fielding its top economic team for Oct. 16-17 meetings in Beijing of the U.S.-China Joint Economic Commission, which serves as a regular forum for U.S. and Chinese officials to get together to discuss economic issues. Snow is leading the delegation, backed by Federal Reserve Chairman Alan Greenspan.

Snow, meanwhile, praised Japan's recent economic revival as a "guide to other nations" and said that reforms of Prime Minister Junichiro Koizumi are starting to cement a turnaround after a more than a decade of stagnation.

Japan's annual economic growth was recently upgraded to 3.3 percent from an earlier estimate of 1.1 percent. The banks' bad loans are largely behind them, and land prices are rising for the first time in 15 years.

Unemployment dropped to 4.1 percent in June, its lowest since 1998, and the Tokyo Stock Exchange's benchmark index has rocketed to four-year highs. Meanwhile, Koizumi is fresh off a landslide election victory and promising sweeping financial reforms to further invigorate the economy.

Japanese and Chinese exports are fueling massive U.S. trade deficits that are increasingly a source of tension between the trans-Pacific trade partners.

Japan's trade surplus with the United States swelled 12.5 percent to $34.1 billion in the first six months of 2005, according to the Japan External Trade Organization.

China predicted last Friday that its global trade surplus could triple to $100 billion this year, which could put added pressure on Beijing to strengthen the yuan. The U.S. trade deficit with China reached $162 billion last year, an all-time high with any country.

In particular, Chinese textile and clothing exports have surged with the lifting of global textile quotas on Jan. 1, and the United States and Europe have put limits on Chinese textile shipments to protect their own clothing manufacturers.

The U.S. Congress has reacted to the trade gap with China with calls for more forceful action. One measure with widespread support would impose 27.5 percent tariffs on all Chinese imports unless Beijing takes more steps to allow its currency to rise in value against the dollar.

Sen. Charles Schumer, a New York Democrat, a backer of the legislation, said Monday that if China does not begin letting the yuan rise in value, co-sponsors will demand a vote before Congress adjourns next month.

"The Chinese and the administration should be under no misapprehension," Schumer told The Associated Press. "If there is no movement, we will push our legislation."