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China moving to flexible yuan: Snow

Posted on: Monday, 17 October 2005, 02:43 CDT

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.

Source: REUTERS

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