China moving to flexible yuan: Snow

By Glenn Somerville

BEIJING (Reuters) – U.S. Treasury Secretary John Snow said
on Monday that he was convinced China was committed to letting
market forces drive the yuan’s value but warned Beijing had to
show progress to hold off U.S. protectionist sentiment.

Speaking at a news conference after meeting Finance
Minister Jin Renqing and Zhou Xiaochuan, governor of the
People’s Bank of China, Snow said both had given assurances of
Beijing’s will to further liberalize the country’s financial
markets and to make continued progress toward a more flexible
yuan.

China revalued the yuan by 2.1 percent in July and
abandoned a peg against the dollar in favor of a managed float.

But since then, authorities have allowed the yuan to rise
by less than 0.3 percent and U.S. law-makers are once again
growing unhappy at what they call a seriously undervalued yuan.

Asked why he was confident that China would indeed let the
currency range more freely, Snow said: “Governor Zhou and
Minister Jin reaffirmed this fundamental commitment and
reviewed with me a number of initiatives under way in financial
markets, particularly with respect to the trading platform …
that are preparing the way for greater currency flexibility.”

In a week-long visit to China, Snow has been trying to
simultaneously show Congress that Treasury is toughly pushing
for currency reform while also encouraging wary Chinese
officials to press on with changes that U.S. officials say will
boost China’s domestic demand and cut America’s trade deficit.

Snow was bracketed at the press conference by Christopher
Cox, chairman of the U.S. Securities and Exchange Commission
and Reuben Jeffery, chairman of the Commodity Futures Trading
Commission.

The three were participating in meetings of the U.S.-China
Joint Economic Commission, where the United States is trying to
get Beijing to adopt the futures and options and other market
mechanisms needed to support a floating currency.

CHINA ON THE MOVE

“Moving to a truly flexible exchange rate requires a lot of
preparatory steps. China is seriously engaged in taking these
preparatory steps,” Snow said. “These are the things that give
me encouragement.”

The U.S. Treasury is due to report next month whether it
judges China to be manipulating its currency, a finding that
could result in punitive trade measures against it. Some
law-makers are separately proposing to slap tariffs of as much
as 27.5 percent on China unless it unshackles the yuan.

Snow called these legislative proposals “ill-conceived” and
said he was hopeful of being able to point to progress China
was making toward more-open markets.

“But we need to see movement,” the U.S. Treasury chief
added. “Let’s make no mistake about it. Congress will demand to
see movement.”

Over the course of his Chinese visit, Snow and the
delegation of senior officials accompanying him have sought to
broaden the discussion of U.S.-Chinese economic relations
beyond currency to include easier access for U.S. firms to
Chinese banking, investment and other financial services
industries.

Still, nearly every question at the press conference dealt
with the U.S. effort to persuade China to adopt a more flexible
currency.

Snow said the U.S. had no timetable for China to act but
said the long-term goal was a freely floating Chinese currency.
“The real objective is to see the Chinese currency eventually
be fully flexible, eventually to move like the dollar and the
euro and other fully floating currencies,” he said.

Snow declined to say whether the encouraging signs he had
heard from Chinese officials made it less likely that China
would be named a currency manipulator in next month’s report.

“I don’t want to foreshadow what we will conclude,” Snow
said. “You know what we said last time and we’re going to
continue to look for signs of real progress.”

In May, Treasury warned that China likely would be named a
manipulator if it did not amend its currency regime. Beijing
did drop its currency peg in July and modestly revalued the
yuan, but the United States wants to keep the pressure on for
more action.

“We will continue to look hard at the situation and try and
evaluate whether or not sufficient progress is being made,”
Snow said.