Two US senators who have proposed trade sanctions against China for its currency system said they were optimistic Beijing will implement reforms, but said sanctions remained a possibility.

US Senators Chuck Schumer, D-NY, (L) and Lindsey Graham, R-SC, seen here at a press conference 15 March 2006. The two US senators, who have proposed  trade sanctions against China for its currency system said on a trip to China, they were optimistic Beijing will implement reforms, but said sanctions remained a possibility. [AFP]

"We believe the Chinese government and people see it in their interest to let the yuan float. So we're feeling better," said Democrat Chuck Schumer.

But asked whether he and his Republican colleague Lindsey Graham will still call a vote in Congress by their target date of March 31 on legislation that would raise tariffs on Chinese imports, Schumer said: "The jury is still out."

"We still need some concrete signs of movement," he told reporters.

The senators are on a fact-finding mission after co-sponsoring a bill that would impose tariffs of 27.5 percent on Chinese imports unless China took steps to strengthen its currency.

The senators and other US critics have argued that the yuan is undervalued by as much as 40 percent against the dollar, making US companies uncompetitive against Chinese rivals, and helping drive up China's trade surplus with the United States to a record 202 billion dollars last year.

The senators said their trip has helped them gain a better understanding of China, including the unemployment pressures it faces, but nonetheless they are more convinced that the yuan needs to rise in value for the good of China as well as the US.

"I'm more committed to the idea that three percent is not the final answer," Graham said, referring to the amount the yuan has risen against the US dollar since July when China revalued it and ended its peg to the dollar, linking it to a basket of currencies instead.

The senators said they now believe the Chinese government has the goal of having its currency float, and were encouraged that Beijing wants to change the structure of China's economic growth by encouraging greater consumption and reducing people's high savings rate.

But they said, without elaborating, that they wanted to see more concrete commitments from China within the next week before the deadline.

"We're not going to say it has to be this amount at this point in time. We have to be convinced that it's real, it's concrete and there's an exit route in terms of letting it float," Schumer said.

Meanwhile, the People's Bank of China said the new regime introduced last year governing the yuan's daily moves was working smoothly and that the exchange rate would be kept "basically stable at a reasonable and balanced level".

"We will further improve the yuan exchange rate formation mechanism and develop the foreign exchange market to increase the floating flexibility of the yuan exchange rate," the central bank said on its website.